Microsoft and its PC partners Tuesday pressed ahead with the release of the first Copilot+ PCs despite delaying the AI-powered “Recall” feature to address security and privacy concerns.

Rather than offering Recall at launch, as originally planned, Microsoft said last week that the feature would first be released and tested through its Windows Insider program in the coming weeks.

The move comes amid broader scrutiny of Microsoft’s security challenges, as reflected in a Congressional hearing last week, and the company’s pledge to prioritize security over new features.

Combined with growing competition from Apple and others in the field, the developments have sapped some of Microsoft’s momentum as it tries to reinvigorate its flagship PC operating system.

In addition to the new Surface Pro and Surface Laptop from Microsoft, new Copilot+ PCs are also available as of today from HP, Lenovo, and other computer makers.

In the absence of the Recall feature, the company is touting capabilities of the Copilot PCs including all-day battery life, a powerful Neural Processing Unit (NPU) and new AI experiences including Cocreator in Microsoft Paint.

Recall captures screenshots at short intervals, making it possible for users to quickly query their history and find information later. Among other changes since the May 20 announcement, Microsoft detailed plans for new levels of encryption and said Recall would be turned off by default unless activated by users during setup.

Apple last week unveiled a series of AI features for Mac, under the name Apple Intelligence, in a preview of macOS Sequoia at the company’s WorldWide Developer Conference. Apple also announced an AI partnership with OpenAI, the longtime Microsoft partner in which the Redmond company has invested billions of dollars.

Updated below with details from hearing.

Microsoft President Brad Smith previewed his approach in prepared written testimony for his appearance Thursday before the U.S. House Committee on Homeland Security for a hearing about the company’s security failures.

“Before I say anything else,” he wrote, “I think it’s especially important for me to say that Microsoft accepts responsibility for each and every one of the issues cited in the CSRB’s report,” he wrote, referencing an April report by the U.S. Cyber Safety Review Board (CSRB) that took Microsoft to task for its “inadequate” security culture.

Smith wrote that the company is committed to changing its ways. He cited evidence including Microsoft’s introduction last fall of its Secure Future Initiative, the more recent commitments by CEO Satya Nadella to put security above all else, and the company’s move to base part of senior executive compensation on security.

He said the company is committed to implementing each of the CSRB’s recommendations. He referenced, as an example, its move Friday to update the “Recall” feature on its Copilot+ PCs to address security concerns.

But if Microsoft is truly prioritizing security over new product features, why did it go forward with the Recall feature in the first place?

Microsoft has repeatedly promised to put security above features in the past, stretching back nearly 25 years — so what’s different this time?

And how can Microsoft justify making as much $20 billion a year on security products, given these problems with its core software products and services?

Those are the types of questions that Smith will face during the hearing, titled, “A Cascade of Security Failures: Assessing Microsoft Corporation’s Cybersecurity Shortfalls and the Implications for Homeland Security.”

Like the CSRB report, the hearing will focus in part on a high-profile incident in May and June 2023, when the Chinese hacking group known as Storm-0558 is believed to have compromised the Microsoft Exchange Online mailboxes of more than 500 people and 22 organizations worldwide, including senior U.S. government officials.

While accepting responsibility and acknowledging Microsoft’s shortcomings, Smith put the issue in broader geopolitical context in his written testimony, citing the potential for China, Russia, Iran, and North Korea to not only act on their own but to collaborate in the future to potentially devasting effect.

Make no mistake, we are all in this together. The CSRB report was sparked by a successful Chinese attack on Microsoft, and we understand every day that we have by far the first and greatest responsibility to heed its words. We’re committed to doing so and to playing an indispensable leadership role in defending not just our customers, but this country and its allies. But no single company can protect a country and other nations from what is emerging as a cyberwar waged by four aggressive governments.

Whether or not this scrutiny makes a meaningful difference in the security of Microsoft’s products, the company’s competitors are hoping that it raises awareness of the issue, at least, and causes government officials and corporate decision-makers to rethink the choices they make when buying software and cloud services.

“Microsoft poses an especially acute national security risk given it has a dominant 85 percent market share in the U.S. government’s productivity software market, which makes the government dependent on Microsoft products including Outlook email, Word, Excel, Teams instant messaging, and the Azure cloud platform,” wrote NetChoice, a trade association whose members include Google and Amazon, in its own letter to the House Homeland Security Committee.

The hearing begins at 10:15 a.m. Pacific. It can be viewed here or above.

Stay tuned for updates, and read Smith’s full written testimony here.

Update, 8:30 a.m.: In a follow-up letter to the Homeland Security Committee, Smith provided details on the Microsoft board’s decisions this week regarding the new security components of senior executives’ compensation.

He wrote, in part, “Beginning with the start of the company’s new fiscal year on July 1, one-third of the individual performance element for each SLT member’s bonus will be based exclusively on the [Microsoft Board Compensation] Committee’s assessment of the executive’s individual performance relating to cybersecurity.”

Update, 10:50 a.m.: In his opening statement, ranking member Rep. Bennie Thompson cited a ProPublica article published Thursday, in which a former Microsoft employee said he tried, without success, to warn execs about a flaw that ultimately left customers vulnerable to the 2019 SolarWinds attack.

Asked about the ProPublica report, Smith cited subsequent changes by the company including the addition of deputy chief information security officers into individual product groups. “The job of these individuals is to constantly monitor and assess and pick up feedback and apply a principled approach to things,” he said.

Asked how the company can earn back the trust of customers, Smith said, “I think it’s just critical that we acknowledge shortcomings, accept responsibility, devise the strategy to address them, change the culture, be transparent about what we’re doing, and always listen to feedback.”

Update, 11:05 a.m.: Members questioned Smith about Microsoft’s failure to update a blog post with information about the 2023 Storm-0558 attack.

Rep: Clay Higgins: Why did it take six months for Microsoft to update the means by which most Americans would be made aware of such a hack?

Smith: Well, first of all, I appreciate the question. It’s one that I asked our team. When I read the CSRB report, that’s part of the report that surprised me the most.

We had five versions of that blog: the original, and then four updates. And we do a lot of updates of these reports. And when I asked the team, they said the specific thing that had changed, namely, a theory, a hypothesis about the cause of the intrusion, changed over time, but it didn’t change in a way that would give anyone useful or actionable information that they could apply.

Higgins: Okay, so you see Mr. Smith, respectfully that answer… does not encourage trust. … The means by which you communicate with your customers was not updated for six months. So I’m just gonna say I don’t really accept that answer. …

Smith: I said the same thing, and we had the same conversation inside the company.

Higgins: Okay, I accept that.

Later, in response to a follow-up question from Rep. Eric Swalwell, Smith elaborated: “We updated that particular blog four times. It was at least one time too few.”

Smith answered another question about competitive alternatives to Microsoft software: “People can compete. Somebody said there’s no Plan B. I think about two-thirds of the folks sitting behind me in this room are trying to sell Plan B to you in one way or another, and that’s okay.”

Microsoft announced Friday that it is making changes to a new feature called “Recall,” turning it into an opt-in experience and adding more layers of security after experts raised concerns about the AI-powered tool unveiled last month.

Recall, which is rolling out as part of Microsoft’s new Copilot+ PCs initiative, takes regular screenshots of user activity on the machine, creating an index that can be queried using AI.

The feature received pushback from security and privacy leaders. Signal President Meredith Whittaker said the feature was a “dangerous honeypot for hackers.”

“We are updating the set-up experience of Copilot+ PCs to give people a clearer choice to opt-in to saving snapshots using Recall,” Microsoft exec Pavan Davuluri wrote in a blog post Friday. “If you don’t proactively choose to turn it on, it will be off by default.

The company also added new safeguards, including proof of presence to view a user’s timeline and search in Recall, and “just in time” decryption.

The Copilot+ PCs initiative combines Microsoft’s Copilot artificial intelligence technologies and its Windows PC operating system.

Microsoft is facing a pair of new antitrust probes from the Federal Trade Commission, according to reports Wednesday evening from The New York Times and Wall Street Journal.

The FTC is seeking information about Microsoft’s hiring of AI pioneer Mustafa Suleyman and colleagues from Inflection AI earlier this year, the Journal reported, citing sources and records. The agency is investigating whether Microsoft structured a deal to gain control of Inflection without going through an FTC review.

Microsoft reportedly paid around $650 million to Inflection in a licensing deal. The company, which is still operating as an independent entity, is known for its large language model and AI chatbot Pi.

Suleyman, the co-founder of DeepMind and a former Google vice president of artificial intelligence, is leading a new organization called Microsoft AI.

Microsoft’s deal with Inflection could be suspended if the FTC finds that the Redmond tech giant should have reported and sought government review of the acquisition, according to the Journal.

“Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue pursuing its independent business and ambition as an AI studio,” Microsoft said in a statement to GeekWire. “We take our legal obligations to report transactions under the HSR Act seriously and are confident that we have complied with those obligations.”

Meanwhile, a separate report from The New York Times reveals that the Justice Department and FTC inked a new deal to pursue an antitrust investigation into the “dominant roles” that Microsoft, OpenAI, and Nvidia play in the AI industry.

The FTC will take the lead on investigating both OpenAI and Microsoft. The two companies are close partners; Microsoft has invested more than $13 billion into the Bay Area company, which provides technology that powers AI features in many Microsoft products. OpenAI runs its services on Microsoft’s Azure cloud platform.

The FTC in January launched a separate inquiry into Microsoft’s investment in OpenAI, as well as Amazon’s investment into Anthropic, another hot AI startup.

Microsoft declined to comment on the New York Times report.

Editor’s note: Story updated with comments from Microsoft.

Microsoft is using artificial intelligence to help preserve the history of D-Day, 80 years after allied forces landed on the beaches of Normandy, France, and turned the tide of World War II.

“The Thread of Memory” is a new online and in-person interactive experience that uses AI to animate archival photos, create 3-D type effects, automatically generate captions, and geographically reposition photographs as close as possible to their current location in order to superimpose maps from 80 years ago onto those of today.

“This is history how everyone should experience it,” Microsoft President Brad Smith says in a video (below) detailing the initiative.

Visitors to the website can explore AI-generated content curated from thousands of historical images. A timeline of events links troop locations and operations to specific times of day. And an audio feature uses voices to share the memories of those who were in Normandy on June 6, 1944.

“Although physical evidence of D-Day remains, we’re losing eyewitness memories that connect us to one of history’s most important events,” Smith says in the video. “’The Thread of Memory’ uses AI to tell a human story of courage and sacrifice.”

Microsoft is partnering with the Taskforce of the 80th Anniversary of the Landings, Liberation of France, Victory, and Iconem on the project.

The first of three physical exhibits opens Wednesday in Normandy before traveling to Provence and Paris later this summer.

“With AI, we are always trying to create a better future,” says Microsoft Chief Data Scientist and AI for Good Lab Director Juan Lavista Ferres. “In this case, we are doing so by recreating the past … “

Not just books but entire bookshelves have been devoted to the life and career of Bill Gates at this point, but the 68-year-old Microsoft co-founder has yet to tell the story of his life in book form — until now.

Gates this morning announced a memoir, “Source Code,” due out next year.

But we’ll have to wait for that tell-all about Microsoft or the Gates Foundation, or the inside stories of the well-publicized ups and downs and controversies of the mogul’s adult life. Instead, the book focuses on his childhood, through his decision to drop out of Harvard and start Microsoft with his boyhood friend, the late Paul Allen, in 1975.

The timing is notable: January 2025 marks the 50th anniversary of the Popular Electronics magazine that featured the early Altair 8800 personal computer, which inspired Gates and Allen to start the company.

Here’s how Gates describes the book in a post on his blog, The Gates Notes.

In the book, I share some of the tougher parts of my early life, including feeling like a misfit as a kid, butting heads with my parents as a rebellious teen, grappling with the sudden loss of someone close to me, and nearly getting kicked out of college. And I cover the challenges of dropping out of school to make a bet on an industry that didn’t really exist yet. But throughout it, you’ll also find the stories of the many people who believed in me, pushed me to grow, and helped me turn my quirks into strengths. And I reflect on the luck I had to be born to a great family in a time of historic technological change and optimism, and to come of age just as the personal computer revolution was taking off.

The book is scheduled for release Feb. 4, 2025, published by Knopf.

A representative of Gates’ firm, Gates Ventures, says Gates’ proceeds from book sales will be donated to the nonprofit United Way Worldwide, in recognition of his late mother Mary Gates’ longtime role as a United Way volunteer and board member of United Way of King County and United Way International.

Microsoft is cutting a total of around 1,000 jobs across the company, in areas including its Azure cloud unit and HoloLens mixed-reality organization, a person familiar with the matter confirmed Monday afternoon.

The cutbacks come as Microsoft tries to maintain its profit margins amid heavier capital spending, which is designed to provide the cloud infrastructure needed to train and deploy the models that power AI applications.

Microsoft employed about 227,000 people worldwide at the end of the 2023 calendar year, down from 232,000 a year earlier, according to numbers tracked by GeekWire based on regulatory filings and earnings calls. Headcount at the end of March was about 1% lower than a year earlier, CFO Amy Hood told analysts.

The layoffs in the Azure for Operators and Mission Engineering teams were first reported by Business Insider.

However the total number of employees impacted by the cuts across the company was closer to 1,000 people, which is a smaller reduction overall than initially reported for the Azure units alone, according to the knowledgeable person who spoke with GeekWire on condition of anonymity.

In a statement, Microsoft confirmed that it made job cuts in its Mixed Reality organization, which includes the HoloLens mixed-reality headset:

“Earlier today we announced a restructuring of the Microsoft’s Mixed Reality organization. We remain fully committed to the Department of Defense’s IVAS program and will continue to deliver cutting edge technology to support our soldiers. In addition, we will continue to invest in W365 to reach the broader Mixed Reality hardware ecosystem. We will continue to sell HoloLens 2 while supporting existing HoloLens 2 customers and partners.”

Addressing the overall cutbacks, a separate statement from the company said, “Organizational and workforce adjustments are a necessary and regular part of managing our business. We will continue to prioritize and invest in strategic growth areas for our future and in support of our customers and partners.”

Microsoft laid off nearly 2,000 employees in January in its gaming unit, three months after the tech giant completed its $69 billion acquisition of Activision Blizzard, the company’s largest acquisition ever.

Microsoft and major PC makers this week announced a plan to incorporate artificial intelligence directly into personal computers, adding on-board neural processing units (NPUs) as part of a new architecture that promises better performance, longer battery life, and local AI processing that unlocks new capabilities and features.

We discuss the new Copilot+ PCs with our guest on this week’s GeekWire Podcast, Stefan Weitz, an investor and entrepreneur who worked at Microsoft for 18 years in groups including Microsoft Bing and MSN. He is the founder of the new HumanX conference on AI taking place in March 2025 in Las Vegas.

Weitz is bullish on the potential for Copilot+ PCs to improve the overall computing experience and motivate Windows PC users to upgrade their machines, a long-awaited milestone for Microsoft’s flagship operating system.

The new Copilot+ PCs have also raised security and privacy concerns, focused primarily on the “Recall” feature that takes regular screenshots of user activity on the machine, creating an index that can be queried using AI.

The company released an FAQ that emphasized the underlying security and privacy controls for users, but also made it clear that the feature will be activated if users accept the defaults during initial bootup of a new machine.

Weitz also shares some of his favorite AI tools, including Cleft Notes and Read AI.

Listen to the episode above, and subscribe to the GeekWire Podcast in Apple Podcasts, Spotify, or wherever you listen.

Audio editing by Curt Milton.

OpenAI CEO Sam Altman played the role of closing act for the opening keynote at Microsoft’s Build developer conference in Seattle on Tuesday morning, in an appearance that was perhaps more symbolic than substantive.

“This is probably the most exciting time to be building a startup, doing a product, whatever it is, that we’ve seen at least since the mobile phone, and probably since the internet,” he said. “And maybe even bigger than that.”

Microsoft CTO Kevin Scott set up the talk with Altman by using a marine metaphor — referencing the relative growth of AI supercomputing systems from the size of an orca to the scale of a giant whale over the past two years. OpenAI, he told Altman, is “making good use of the whale-sized computer right now.”

The elephant in the room was not addressed.

OpenAI has been embroiled in controversy this week after actress Scarlett Johansson questioned the similarities between her voice, as featured in the movie “Her,” and one of the voices in ChatGPT, after OpenAI reportedly tried unsuccessfully to get Johansson to provide the voice. OpenAI removed the voice in response.

Altman wasn’t asked about the dustup, and didn’t bring it up voluntarily, but he referenced the fact that OpenAI has been able to introduce new modalities such as voice as the speed of AI has increased and the cost has come down.

“Voice mode has been actually a genuine surprise for me,” he said.

Microsoft is a major investor in OpenAI, integrates OpenAI technology into its products, and provides computing resources to train and run OpenAI’s models.

Altman’s appearance Tuesday underscored the ongoing close relationship between the companies, which was perhaps more important after OpenAI announced it was releasing its new ChatGPT desktop app on Apple Mac computers last week, despite working closely with Microsoft on AI technologies.

During his keynote Tuesday morning, Microsoft CEO Satya Nadella called the company’s relationship with OpenAI its “most strategic, most important partnership” in the realm of AI.

At the event, Microsoft announced the availability of GPT-4o as part of its Azure OpenAI Service.

Other points made by Altman during his appearance:

• AI models will continue to get smarter, improving safety, utility and the value they can provide.
• While AI enables new capabilities, building enduring products and services still requires hard work.
• Significant progress has been made in developing robust and safe AI systems.

Referencing the growing ubiquity of artificial intelligence, Altman compared the current platform shift to the late 2000s, when companies would refer to themselves as “mobile,” before the technology reached the point that the designation was assumed, and no longer required to be explicit.

As with mobile, he said, AI is quickly becoming table stakes.

Online education platform Khan Academy is shifting a portion of its cloud workload to Microsoft Azure under a partnership announced Tuesday morning.

Microsoft says it will donate access to its AI cloud infrastructure to allow Khan Academy to offer Khanmigo for Teachers free of charge to K-12 educators in the U.S. The AI assistant will now be powered by the Azure OpenAI Service, according to the company.

Khanmigo for Teachers previously cost $4 per month to cover the cost of developing, testing, and deploying the AI technology to educators.

Khan Academy is a longtime Google Cloud customer, based in the search giant’s hometown of Mountain View, Calif. Microsoft, Google Cloud, Amazon Web Services, and other cloud platforms are competing aggressively in AI to grow their businesses, attract new customers, and expand the use of their cloud technologies.

Tech companies including Microsoft have a longstanding history of offering software and hardware for free or reduced prices to schools in hopes of entrenching their software and creating lifelong loyalty to their platforms.

Khanmigo for Teachers integrates with Khan Academy content and streamlines the process of creating lesson plans, quizzes, and other tasks, with the goal of freeing up more of teachers’ time to work directly with students.

Microsoft said the Khan Academy partnership also includes a collaboration to improve online math tutoring using Phi-3, AI technology from Microsoft based on a small language model, designed to be more efficient and lightweight.

In addition, Microsoft said it will work with Khan Academy to integrate more of its content into Microsoft’s Copilot AI assistant and Microsoft Teams for Education.

Microsoft announced the partnership at its Build developer conference in Seattle.

Microsoft will test the limits of artificial intelligence in group collaboration with a new AI assistant that keeps meetings on track, takes collaborative notes, manages large projects, and assigns tasks.

The company says the new “Team Copilot” expands its Copilot AI technology beyond its existing function as a one-on-one personal assistant, to play a larger role inside organizations.

For anyone with qualms about taking direction or assignments from an AI bot, the company noted that people are ultimately in control — with the ability to ignore or override the choices or assignments made by the Team Copilot. They can also turn the tables and assign tasks to the Team Copilot instead, as the situation requires.

It’s part of a broader effort by Microsoft to expand the capabilities of Microsoft 365 Copilot, which costs businesses an additional $30/user per month on top of the existing price of Microsoft 365 licenses.

Microsoft announced the Teams Copilot feature at its Build developer conference in Seattle on Tuesday morning, along with a new wave of tools and technologies for creating, deploying, and integrating AI technologies. Microsoft, Google, Amazon, and others are competing aggressively in AI to expand the footprints of their cloud platforms.

The company says Team Copilot will be available in Microsoft Teams, Loop, and Planner, among other programs. It’s slated to be released in preview later this year, requiring a Microsoft 365 Copilot license to access.

In 2020, Microsoft made an ambitious commitment to make its operations carbon negative within a decade, removing more carbon from the environment than it emits each year.

But four years in, the carbon footprint for the cloud, software and gaming giant keeps expanding.

Depending on how you tally Microsoft’s greenhouse gas emissions, they’re now between 29% and 40% higher than when CEO Satya Nadella made his pledge. That’s according to the company’s 2024 Environmental Sustainability Report, which documents its impacts for the 2023 fiscal year and was released Wednesday.

The increasing use of artificial intelligence and generative AI tools like ChatGPT will make Microsoft’s environmental targets even tougher to reach as they drive demand for ever more energy-gobbling data centers built from carbon-intensive materials such as steel and concrete. The company spent a record $14 billion on capital expenditures in the first quarter of this year alone.

Despite the worrying trends in its carbon emissions, leadership at the Redmond, Wash.-based company stands by the goals.

Melanie Nakagawa, Microsoft’s chief sustainability officer, told GeekWire that while there are challenges in key areas, there is progress in curbing some emissions sources and the corporation is investing in initiatives and climate tech companies that will help ratchet down their carbon impacts over time.

“When we set these targets and 2020, these were our moonshot,” Nakagawa said. “And we remain steadfast in our commitment to getting there. We still have six years to go. We believe there’s incredible innovations, both happening today as well as what we are investing for, that will be online by 2030.”

Microsoft last year emitted more than 15.4 million metric tons of carbon dioxide equivalent, based on its lower calculations. That’s about five times the annual emissions for the city of Seattle.

As its carbon impact expanded, the company reported a net income of $72.4 billion during its fiscal 2023, up 6% year-over-year.

The company’s efforts to cut emissions include:

• The development of more than 80 new strategies for cutting carbon attributed to construction projects, purchased goods and employee travel.
• One of those solutions is a new requirement that by 2030, when the company contracts with high-volume suppliers it will only deal with those who use 100% carbon-free electricity for the goods and services they provide to Microsoft.
• The recent signing of a deal to buy 10.5 gigawatts of renewable power, which will be added to the 19.8 gigawatts of clean energy already in its portfolio.
• In 2023, Microsoft bought more than 5 million metric tons of carbon removal.
• Continued investments from its $1 billion Climate Innovation Fund in startups developing low-carbon products such as greener steel and concrete and sustainable aviation fuel.

The company also has environmental initiatives to increase the supply of clean water, shrink its waste stream to zero, and protect the planet’s diversity of plants and animals.

The sustainability report disclosed that the company’s water use has increased 87% since 2020, rising to nearly 2.1 billion gallons last year. The water is used primarily to cool the banks of computers in its data centers. To offset that use, Microsoft has projects to replenish water supplies around the world that currently total more than three-times the water it’s using.

However, the company’s water consumption in specific locations is raising concerns. Microsoft is building a data center in a parched town in Arizona, for example, that will use 56 million gallons of water a year, according to a recent report in The Atlantic.

The company states in its report that future data centers will consume no drinking water for cooling, while being “designed and optimized to support AI workloads.” Alternative strategies include capturing rainwater and using reclaimed water.

As part of its waste initiative, Microsoft reports that it recycled and reused 89.4% of its cloud computer servers and other components.

To address its goals for preserving wildlife and natural spaces, the company permanently protected 15,849 acres.

Editor’s note: Story updated to clarify that the requirement that Microsoft contract with suppliers who use 100% renewable energy applies only to larger, high-volume suppliers.

Bill Hilf, the veteran tech executive and longtime CEO of late Microsoft co-founder Paul Allen’s holding company, formerly known as Vulcan Inc., is stepping down after more than seven years.

The company, which changed its name to Vale Group earlier this year, does not plan to replace Hilf as CEO after his departure at the end of May.

Instead, the current leadership team will oversee day-to-day operations, reporting to Jody Allen, the sister of Paul Allen, a Vale Group spokesperson said in response to GeekWire’s inquiry.

Jody Allen co-founded the company and was its prior CEO. She serves in a variety of related roles, including executor and trustee of Paul Allen’s estate.

Hilf said in an interview Monday that he has been talking with Jody Allen for a while about the right moment to make a leadership transition. The organization, which once employed more than 800 people, now numbers around 140 after a series of divestitures and spin-offs following Paul Allen’s death in 2018.

“We have things on really good pathways right now,” Hilf said, describing the leadership team as “rock solid,” and in a good position to run the organization, reporting directly to Jody Allen.

Hilf said he expects to remain involved in a variety of Seattle-area initiatives, including his role as board chair of the Allen Institute for AI (AI2).

At the same time, he will be spending more time with his family in Montana, pursuing his own personal and charitable interests. He was recently named chair of the national board of directors of American Prairie, a Montana-based nonprofit conservation organization.

A veteran of companies including Microsoft and Hewlett-Packard Enterprise, Hilf joined Vulcan in 2016, serving as CEO for about two years prior to Paul Allen’s death in October 2018 from a recurrence of non-Hodgkin’s lymphoma.

As previously reported by GeekWire and others, much of the organization’s focus since Allen died has been on overseeing the wind-down and disposition of many of Allen’s projects, investments and assets, such as the h.Club LA and London, Stratolaunch, Vulcan Productions, and the Cinerama theater in Seattle, now known as SIFF Cinema.

The organization does not include the Seattle Seahawks football team or Portland Trail Blazers basketball team, which are owned directly by the Paul Allen Estate, reporting up to Jody Allen separately.

Hilf said he’s confident that Paul Allen’s philanthropic vision will continue.

“You’re seeing it flourish in so many different areas already, like at the Allen Institute, and AI2, where you’re seeing these incredible science organizations, these nonprofits, really make tremendous breakthroughs and attract some of the world’s greatest talent,” he said. “Paul Allen’s philanthropic wave of impact will, I think, go on for many decades ahead, both in Seattle and beyond.”

As a distinguished engineer working on the Microsoft Azure AI Search team, Pablo Castro has insight into the inner workings of generative AI, AI search, and the approach that Microsoft is taking to build these systems with its developer ecosystem in mind.

Speaking on a new episode of the Shift AI Podcast, Castro mentions three trends he’s excited about in these areas.

• Models with much longer context length, which allow more data to be taken into consideration when AI responds to each prompt.
• Faster AI models, with speed becoming more important for enabling real-time conversations and decision-making.
• Increasing sophistication of retrieval systems, with different language models and knowledge bases increasingly working together to improve answers.

Castro also hints at upcoming developments from Microsoft. 

“We’ve been working hard on the state-of-the-art systems for removing all these concerns around the cost of scale,” he says. “You’ll see us, very soon, talk about a complete shift in the level of scale you can achieve with our retrieval systems for generative AI apps, and a huge improvement in economics.”

One of Castro’s goals, he says, is to ensure that economic concerns don’t limit the amount of data that people apply to artificial intelligence models. 

He also cites some specific areas of focus for Microsoft’s Azure AI platform this year:

• Lowering friction: The company is looking to make it easier for customers to create end-to-end AI experiences, including acquiring and preparing data, and ensuring good results.
• Scaling to production: While much of the attention was on proofs of concept in 2023, the focus has expanded this year to help customers integrate AI reliably at scale in secure production environments.

Those are some of the insights from Castro in this episode of Shift AI, a show that explores what it takes to adapt to the changing workplace in the digital age of remote work and AI. We also discuss his early days at Microsoft and explore his role leading the Azure AI team in the discovery of how best to integrate Gen-AI and AI search into business operations.

Listen below, and continue reading for highlights from his comments, edited for context and clarity. Subscribe to the Shift AI Podcast and hear more episodes at ShiftAIPodcast.com. 

Role at Microsoft Azure AI: Today I’m spending a lot of time at the intersection of these language models and knowledge. So the question that we tackle with my team is, in a world where you have these language models that are effectively reasoning engines that are very clever, but they don’t know about the stuff that you need them to know about, and we have lots of data, but it’s separated from these models, how do you put them together?  That intersection is critical in terms of applying all this fascinating technology to business problems. It’s also, frankly, a lot of fun because it mixes these language modeling problems with knowledge representation problems. How do we integrate these things? How do we take advantage of the strengths of each of these pieces of technology? We’ve been spending a lot of time in this space.

A ‘tight learning loop’: The last 18 months, maybe a little longer, have been a blur. So many of our customers are doing things with Azure OpenAI, and Azure AI Search, and the rest of the Azure AI platform. We’ve learned a ton from people taking this technology and using it for real problems, real business priorities. So that has been fascinating. But also, it’s been a learning opportunity. It’s very humbling when all these people are excited about the thing that you’re offering, and then they go to use it, and they’re like, “Well, we couldn’t because this didn’t work, or this is not what I thought.” So we’re in this very tight learning loop.

The state of AI in 2024: If I look at 2023, I feel it was the year of demos and proofs of concept, where this was so new. All of us wanted to see what it felt like to build one of these things, and everyone took their business problem and gave it a try. It is clear that 2024 is the year all of these things are going to production. So the challenges shift from, “How do I get this off the ground and try one or the other thing?” to “How do I do this securely? How do I know that this integration is going to work well over time?” We’re going to add multiple orders of magnitude in scale. And what does that mean for the systems that are powering these? And do they scale the way you think they will, and would not? I always think about the things we can do for our customers to remove problems for them, so that they can think about the things only they can do because they have the context of their own business.

AI data and security: One of the top questions I hear from customers is, “Well, but no matter what I do with data management, at some point I’m going to take the question and instructions and the grounding information, and I’m going to send it to Azure OpenAI. So you are going to see the data. Are you going to train on that? Are you going to learn from it?” And we made it a point to have a very short and crisp answer, which is, no. We don’t train on customer data. We don’t learn from that data. We don’t use it to improve the models. In fact, we don’t keep it.

The future of work: I’m not a marketing person and I don’t understand many of the choices that we make, but whoever coined Copilot as the thing for Microsoft, they had a very good day. That’s exactly how I think about this current wave of technology. There are these kinds of extensions of your brain that can help you do things that it would not have been practical to do otherwise, while still factoring human ingenuity in the picture. 

Listen to the full episode of Shift AI with Microsoft Azure AI Distinguished Engineer Pablo Castro here.

Microsoft plans to invest $3.3 billion in an artificial intelligence-related initiative in Wisconsin, giving a boost to President Joe Biden’s job-creation efforts in the key election battleground state.

The investment, according to a Microsoft announcement on Wednesday, will go toward expanding the tech giant’s cloud computing and AI infrastructure capacity, with the development of a state-of-the-art data center campus in Racine, Wisc.

Microsoft also plans to create the country’s first manufacturing-focused AI co-innovation lab, and an AI skilling initiative to equip more than 100,000 Wisconsin residents with essential AI skills.

The data center project is expected to create 2,300 union construction jobs in the area by 2025, and 2,000 permanent jobs over time — numbers that Biden touted in his own news release, which took shots at former President Donald Trump’s inability to come through for Wisconsin residents and workers.

Biden said the data center will be built on the same land as a failed $10 billion investment from Taiwanese electronics manufacturer Foxconn six years ago.

Biden said Trump’s Foxconn plan called for 13,000 manufacturing jobs in the region, but “after 100 homes and farms were bulldozed to make way for the manufacturing plant and over $500 million in taxpayer dollars were invested to prepare the site, no such investment materialized.”

As part of his “Investing in America” agenda, Biden was meeting Wednesday in Wisconsin with Microsoft President Brad Smith at Gateway Technical College to announce the new investment. Along with building the physical data center, Microsoft said it will partner with Gateway to build a Data Center Academy to train and certify more than 1,000 students in five years to work in the new data center and IT sector jobs created in the area.

In remarks before Biden took the stage, Smith said he lived in Wisconsin from age 9 to 14, just a few miles from where he was speaking. He said his family dog came from a farm that is now part of the land where they are building the new data center.

Biden thanked Smith for his partnership and for showing “how we can get things done, big things done, in America.”

The president called out a “trail of broken promises” by Trump, including the failed Foxconn project.

“[Trump] came here with your senator, Ron Johnson, literally holding a golden shovel, promising to build the eighth wonder of the world,” Biden said. “Are you kidding me? Look what happened. They dug a hole and then they fell into it. … Foxconn turned out to be just that — a con.”

In a separate appearance on CNN Wednesday morning, Smith said Wisconsin has a legacy of manufacturing and innovation, and is a place “where people get things done by working together.” Asked about the political implications of Microsoft’s plans during an election year, Smith said “Microsoft isn’t running for anything,” but that the Biden administration has been “enormously helpful” on the AI project.

Microsoft released a new version of a study that has documented the transformation of work over the past few years, from the implications of remote and hybrid work to the rise of artificial intelligence in the workplace.

Among the findings this year: AI usage has nearly doubled in the past six months, reaching 75% of knowledge workers, according to Microsoft’s annual Work Trend Index. The study is based on a survey of 31,000 people in 31 countries, in addition to Microsoft 365 usage, LinkedIn data, and research conducted with big companies.

The report, released Wednesday morning, presents an optimistic view about the impact of AI on productivity and efficiency, as one might expect from a company betting much of its future on AI adoption by knowledge workers.

AI “power users” are saving more than 30 minutes a day, according to the study, which supports the company’s past promise that AI would reduce the drudgery of everyday work.

Many of those using AI (about 78%) are adopting AI tools on their own, in a trend described in the report as “Bring Your Own AI,” or BYOAI. This finding also plays into Microsoft’s hands, as the tech giant seeks to upsell its business customers on the notion of adding premium AI capabilities to their existing software licenses.

In allowing BYOAI to happen, companies risk “missing out on the benefits that come from strategic AI use at scale and putting company data at risk,” Microsoft says in a summary of the study.

From the perspective of software vendors, it’s reminiscent of the “Bring Your Own Device” trend that rattled corporate IT departments in the early heyday of smartphone adoption, and the grassroots adoption of collaboration tools that spurred corporate decision-makers to sign up for companywide subscriptions.

With the release of the study, Microsoft announced new features for Copilot for Microsoft 365, its flagship AI tool for work, which the company is selling for $30/user per month as an add-on to enterprise licensing packages.

• One new feature offers to autocomplete AI prompts as a user is typing them, and another can rewrite prompts to make them more effective.
• A new chat interface called “Catch Up” offers suggestions about upcoming meetings and other information and insights from user activity.
• An upcoming feature will allow teams to create, publish, and manage the AI prompts that they use, sharing them with other members of their team.

AI is also changing the job market, according to data from LinkedIn, the Microsoft-owned business social network. The number of people adding AI skills to their profiles has risen significantly, and job posts that mention AI have seen a 17% increase in the number of applications they receive, the LinkedIn data show.

More than 45% of respondents globally said they were considering quitting their jobs in the coming year, which the company called the highest percentage since the “Great Reshuffle” of 2021.

This week on the GeekWire Podcast, we discuss Amazon’s efforts to compete with Trader Joe’s, and the related tactics revealed in “The Everything War,” the new book by Dana Mattioli of the Wall Street Journal. We also revisit last week’s episode with Mattioli and share some of the reactions to the discussion.

Plus, the FTC probes Amazon’s internal use of Signal’s disappearing messages feature, a newly disclosed email shows how Microsoft scrambled to catch up in artificial intelligence, and a new report says that Bill Gates is still a highly influential figure inside Microsoft, especially when it comes to the company’s AI strategy.

Finally, we go inside the Seattle courtroom where a prominent figure from the cryptocurrency world, Binance founder Changpeng “CZ” Zhao, received a controversial prison sentence this week.

Subscribe to GeekWire in Apple Podcasts, Spotify, or wherever you listen.

Other stories discussed on the show:

• Amazon stock rises as Q1 earnings top estimates with $143.3B in revenue; AWS sales up 17%
• DoorDash rips Seattle over minimum wage law; reports record quarterly revenue of $2.5B
• Prudential to shut down Assurance, the insurance tech startup it acquired for $2.35B in 2019
• KING5: Binance founder Changpeng Zhao sentenced to 4 months for allowing money laundering
• Business Insider: Bill Gates is still pulling strings at Microsoft, overseeing AI ideas
• Internet Archive: Full text: An epic Bill Gates rant

This is the text of Microsoft CEO Satya Nadella’s internal memo sent to employees Friday, May 3, about the company’s new security initiatives, expanding on Microsoft Security leader Charlie Bell’s public blog post on the topic.

GeekWire obtained the memo independently. Also see our related coverage.

Today, I want to talk about something critical to our company’s future: prioritizing security above all else.

Microsoft runs on trust, and our success depends on earning and maintaining it. We have a unique opportunity and responsibility to build the most secure and trusted platform that the world innovates upon.

The recent findings by the Department of Homeland Security’s Cyber Safety Review Board (CSRB) regarding the Storm-0558 cyberattack, from summer 2023, underscore the severity of the threats facing our company and our customers, as well as our responsibility to defend against these increasingly sophisticated threat actors.

Last November, we launched our Secure Future Initiative (SFI) with this responsibility in mind, bringing together every part of the company to advance cybersecurity protection across both new products and legacy infrastructure. I’m proud of this initiative, and grateful for the work that has gone into implementing it. But we must and will do more.

Going forward, we will commit the entirety of our organization to SFI, as we double down on this initiative with an approach grounded in three core principles:

• Secure by Design: Security comes first when designing any product or service.
• Secure by Default: Security protections are enabled and enforced by default, require no extra effort, and are not optional.
• Secure Operations: Security controls and monitoring will continuously be improved to meet current and future threats.

These principles will govern every facet of our SFI pillars as we: Protect Identities and Secrets, Protect Tenants and Isolate Production Systems, Protect Networks, Protect Engineering Systems, Monitor and Detect Threats, and Accelerate Response and Remediation. We’ve shared specific, company-wide actions each of these pillars will entail — including those recommended in the CSRB’s report — which you can learn about here [internal links omitted]. Across Microsoft, we will mobilize to implement and operationalize these standards, guidelines, and requirements and this will be an added dimension of our hiring and rewards decisions. In addition, we will instill accountability by basing part of the compensation of the senior leadership team on our progress towards meeting our security plans and milestones.

We must approach this challenge with both technical and operational rigor, and with a focus on continuous improvement. Every task we take on — from a line of code, to a costumer or partner process — is an opportunity to help bolster our own security and that of our entire ecosystem. This includes learning from our adversaries and the increasing sophistication of their capabilities, as we did with Midnight Blizzard. And learning from the trillions of unique signals we’re constantly monitoring to strengthen our overall posture. It also includes stronger, more structured collaboration across the public and private sector.

Security is a team sport, and accelerating SFI isn’t just job number one for our security teams — it’s everyone’s top priority and our customers’ greatest need.

If you’re faced with the tradeoff between security and another priority, your answer is clear: Do security. In some cases, this will mean prioritizing security above other things we do, such as releasing new features or providing ongoing support for legacy systems. This is key to advancing both our platform quality and capability such that we can protect the digital estates of our customers and build a safer world for all.

Satya

Microsoft is changing its security practices, organizational structure, and executive compensation in an attempt to address a series of major security breaches, under growing pressure from government leaders and big customers.

The company said Friday morning that it will base a portion of senior executive compensation on progress toward security goals, install deputy chief information security officers (CISOs) in each product group, and bring together teams from its major platforms and product teams in “engineering waves” to overhaul security.

“We will take our learnings from security incidents, feed them back into our security standards, and operationalize these learnings as ‘paved paths’ that can enable secure design and operations at scale,” wrote Charlie Bell, the Microsoft Security executive vice president, in a blog post outlining the changes.

Bell said the changes build on the Secure Future Initiative (SFI), introduced last fall.

“Ultimately, Microsoft runs on trust and this trust must be earned and maintained,” he wrote. “As a global provider of software, infrastructure, and cloud services, we feel a deep responsibility to do our part to keep the world safe and secure.”

The changes follow a critical report by the Cyber Safety Review Board (CSRB) that described Microsoft’s security culture as “inadequate” and called on the company to make security its top priority, effectively reviving the spirit of the Trustworthy Computing initiative that Microsoft co-founder Bill Gates instituted in 2002.

The report called for security initiatives to be “overseen directly and closely” by Microsoft’s CEO and board, and said “all senior leaders should be held accountable for implementing all necessary changes with utmost urgency.”

After the CSRB report’s release, Sen. Ron Wyden of Oregon introduced legislation designed in part to reduce the U.S. government’s reliance on Microsoft software, citing the company’s “shambolic cybersecurity practices.”

Bell wrote that Microsoft is “integrating the recent recommendations from the CSRB” as part of the changes announced Friday, in addition to lessons learned from high-profile cyberattacks.

The compensation changes announced Friday will apply to Microsoft’s senior leadership team, the top executives who report to CEO Satya Nadella. The company did not say how much of their compensation will be based on security.

Nadella hinted at these changes last week on the company’s quarterly earnings call when he said the company would be “putting security above all else — before all other features and investments.”

In an internal memo Friday morning, obtained by GeekWire, Nadella delivered a mandate to employees, expanding on the themes outlined in Bell’s public blog post.

“If you’re faced with the tradeoff between security and another priority, your answer is clear: Do security,” the Microsoft CEO told employees. “In some cases, this will mean prioritizing security above other things we do, such as releasing new features or providing ongoing support for legacy systems.”

Bell wrote in his post that the company’s new “security governance framework” will be overseen by Microsoft’s Chief Information Security Office, which is led by Igor Tsyganskiy as Microsoft’s CISO following an executive shakeup in December.

The deputy CISOs in product teams will report directly to Tsyganskiy, according to the company. This change in organizational and reporting structure was first reported by Bloomberg News on Thursday.

“This framework introduces a partnership between engineering teams and newly formed Deputy CISOs, collectively responsible for overseeing SFI, managing risks and reporting progress directly to the Senior Leadership Team,” Bell wrote. “Progress will be reviewed weekly with this executive forum and quarterly with our Board of Directors.”

Microsoft revealed in January of this year that a Russian state-sponsored actor known as Nobelium or Midnight Blizzard accessed its internal systems and executive email accounts. More recently, the company said the same attackers were able to access some of its source code repositories and internal systems.

In another high-profile incident, in May and June 2023, the Chinese hacking group known as Storm-0558 is believed to have compromised the Microsoft Exchange Online mailboxes of more than 500 people and 22 organizations worldwide, including senior U.S. government officials.

Analysts, investors, and the media are suddenly focused intensely on capital expenditures by tech giants including Microsoft, Meta, Google, and others to size up the industry’s bet on the cloud and artificial intelligence.

Charles Fitzgerald is wondering where everyone has been.

The Seattle angel investor and tech veteran has made a tradition of tracking capital expenditures on his blog, Platformonomics, to “separate the clouds from the clowns,” as he puts it. He has watched with amusement as the rest of the world, seemingly, has caught on to the importance of CapEx in tech over the past week.

It makes sense, though, because the numbers are starting to get big.

• Microsoft’s capital expenditures rose 79% to a record $14 billion in the March quarter. Amy Hood, Microsoft’s chief financial officer, told analysts that CapEx will keep growing in the 2025 fiscal year, which starts in July.
• Google parent Alphabet reported capital expenditures of $12 billion, up 90%, “driven overwhelmingly by investment in our technical infrastructure,” CFO Ruth Porat told analysts. The increase “reflects our confidence in the opportunities offered by AI across our business,” she said.
• Facebook parent Meta reported $6.7 billion in quarterly capital expenditures, down from more than $7 billion a year earlier, but raised its CapEx guidance for the year to a range of $35-40 billion, up from $30-37 billion before.

CapEx for cloud and AI includes upgrading and building new data centers; developing and procuring GPUs and specialized chips to train and run AI foundation models; laying transoceanic cables; and other infrastructure to expand what amounts to a “globe-spanning mega-computer,” as Fitzgerald puts it.

“There’s a huge build-out going on,” he said.

The big question, long-term, is whether demand for AI services will be worth the investment for each company. For example, Meta’s shares plunged on its capital expenditure forecast, indicating that investors aren’t as confident in its ability to turn its AI investments into meaningful revenue over the long term.

On the Microsoft call last week, Hood emphasized the company’s focus on controlling costs to avoid capital expenditures cutting significantly into its profit margins, which analysts seemed willing to accept. Microsoft’s tight partnership with ChatGPT maker OpenAI is a key driver of AI demand and revenue for the company.

“We continue to bring capacity online as we scale our AI investments with growing demand,” Hood told analysts. “Currently, near-term AI demand is a bit higher than our available capacity.”

Some AI startups, meanwhile, are facing the daunting challenge of staying competitive and finding a niche in the face of these outsized investments by the major tech platforms.

So why has Fitzgerald been paying attention to these numbers for so long? In short, when it comes to assessing the cloud platforms, capital expenditures serve as table stakes and a barometer. “It’s a prerequisite to play in this space, but it’s also confirmation that you’re playing,” he said.

This explains why Fitzgerald skewered IBM last week for a 21% decrease in CapEx. But for other tech giants, the outsized investments in cloud and AI infrastructure are redefining their businesses, taking them well beyond the software and online services that have fueled much of their growth.

For example, Microsoft’s capital expenditures went from 5% of revenue a decade ago to 15% in its 2023 fiscal year. In the most recent quarter, it surpassed 22%, with $14 billion in capital expenditures and $61.9 billion in revenue.

“They’ve become hardware companies,” Fitzgerald said.

What about Amazon? It’s a different beast, in part because its overall capital expenditures include not only its Amazon Web Services data centers but also fulfillment centers and other e-commerce facilities.

However, a line in the company’s annual 10K filing with the SEC breaks out the “total net additions to property and equipment” for AWS, which declined from $27.8 billion in 2022 to $24.8 billion in 2023, in contrast with the capital spending increases by Microsoft and Google, Amazon’s biggest rivals in the cloud.

Amazon on Tuesday announced general availability of Amazon Q, its AI assistant for software development, cloud optimization, and business intelligence.

Amazon has spent much of the past year seeking to convince Wall Street and the tech world that it’s positioning itself to succeed in artificial intelligence. Given that, it’s not a stretch to imagine Amazon offering up some juicy new details about its capital expenditures when it reports earnings Tuesday afternoon.

Fitzgerald will be paying close attention — along with everyone else.

Satya Nadella has made a habit of touting the revenue growth in the company’s security technology business on Microsoft’s earnings calls. But not this time.

Microsoft’s CEO took a different approach, talking instead about the Secure Future Initiative that the company launched last fall, and then making a pledge.

“We are doubling down on this very important work, putting security above all else — before all other features and investments,” Nadella said Thursday afternoon, after the company’s fiscal third-quarter earnings report.

It was a brief diversion from the bigger topic of the day. Nadella and CFO Amy Hood spent much of the call fielding questions about the AI demand fueling the company’s growth, and the capital expenditures needed to keep up.

But it was a notable change in tone about security, and a sign of the growing pressure on the company amid a series of high-profile hacks and a growing chorus of concern from governmental agencies and big customers.

Nadella’s vow to put security “above all else” follows a report by the Cyber Safety Review Board (CSRB) that described Microsoft’s security culture as “inadequate” and called on the company to make security its top priority.

The group, created by the U.S. Secretary of Homeland Security in 2021 to review major cybersecurity incidents, said Microsoft’s approach “requires an overhaul, particularly in light of the company’s centrality in the technology ecosystem and the level of trust customers place in the company to protect their data and operations.”

The CSRB report referenced Nadella directly, saying the company’s security overhaul should “be overseen directly and closely by Microsoft’s CEO and its Board of Directors, and that all senior leaders should be held accountable for implementing all necessary changes with utmost urgency.”

The report focused on a high-profile incident in May and June 2023, when the Chinese hacking group known as Storm-0558 is believed to have compromised the Microsoft Exchange Online mailboxes of more than 500 people and 22 organizations worldwide, including senior U.S. government officials.

Among other breaches, Microsoft revealed in January of this year that a Russian state-sponsored actor known as Nobelium accessed its internal systems and executive email accounts. More recently, the company said the same attackers were able to access some of its source code repositories and internal systems.

Microsoft’s engineering and security teams “have been scrambling” to respond to the attacks from the group and shore up its defenses, reported Tom Warren of The Verge on Thursday, citing unnamed sources.

The company has been here before, more than two decades ago. Microsoft halted its internal software development temporarily and made security its top priority under the “Trustworthy Computing” initiative that Bill Gates instituted in 2002.

“In a perfect world, Microsoft would take security seriously again,” wrote Mary Jo Foley of Directions on Microsoft this week in a piece about the issue. “It would be transparent about breaches. Its execs would stop gloating about increasing security service revenue at a time when Microsoft can’t secure its own employees, let alone customers, against incidents that are happening with increasing frequency. And Microsoft would include must-have security capabilities as part of existing subscriptions instead of selling them as add-ons.”

Nadella’s new approach seems to be a partial response to these larger calls for change. Here’s the rest of what he said on the topic during the earnings call, referencing the Secure Future Initiative.

“We are focused on making continuous progress across the six pillars of this initiative as we protect tenants and isolate production systems, protect identities and secrets, protect networks, protect engineering systems, monitor and detect threats, and accelerate response and remediation.

“We remain committed to sharing our learnings, tools, and innovation with customers. A great example is Copilot for Security, which we made generally available earlier this month, bringing together LLMs with domain-specific skills informed by our threat intelligence and 78 trillion daily security signals, to provide security teams with actionable insights.”

None of the participating Wall Street analysts asked about security during the call.

Updated with details from Microsoft’s earnings conference call.

Microsoft posted a 17% increase in revenue, to $61.9 billion, with $21.9 billion in profits, up 20%, and earnings of $2.94 per share, beating Wall Street’s expectations across the board for the third quarter of its 2024 fiscal year.

The results helped to cement Microsoft’s position as the world’s most valuable company, lifting the company’s stock in after-hours trading, and provided further evidence of the potential for AI to fuel its business.

Microsoft “is seeing a new era of AI transformation driving better business outcomes across every role and industry,” said Satya Nadella, the company’s CEO, on its earnings conference call.

Nadella and CFO Amy Hood spent much of the call fielding questions about the AI demand fueling the company’s growth, and the capital expenditures needed to keep up. Microsoft spent a record $14 billion in the quarter on capital expenditures, including new data centers and computing infrastructure to train and run AI models.

“We continue to bring capacity online as we scale our AI investments with growing demand,” Hood said. She added that demand for AI is currently “a bit higher than our available capacity,” said capital expenditures will increase in the next fiscal year, and noted that the company is watching other expenses closely to avoid hurting profits.

Revenue from Microsoft’s Azure cloud platform and related services was up 31%, according to the company’s earnings release. About 7 percentage points of this growth came from artificial intelligence, including Microsoft’s Azure OpenAI service, which provides access to AI models from Microsoft’s key AI partner.

Microsoft’s earnings release does not disclose the contribution to its Office Commercial product line from Microsoft 365 Copilot, its AI tool for businesses, leaving the impact of that product on its overall revenue unclear. Overall revenue from Office Commercial products and cloud services increased 13% in the quarter.

The company’s overall cloud revenue was up 23% to 35.1 billion. This includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud properties.

Revenue was up in each of the three divisions used by Microsoft in its financial reporting.

• Productivity and Business Processes (Office, LinkedIn, Dynamics) rose 12% to $19.6 billion.
• Intelligent Cloud (Azure, Windows Server) rose 21% to $26.7 billion.
• More Personal Computing (Windows, devices, gaming) rose 17% to $15.6 billion

Devices, which includes Microsoft Surface laptops and tablets, saw the biggest revenue decline among the company’s major product lines, falling nearly 17% to slightly more than $1 billion in revenue for the quarter.

Microsoft Gaming revenue rose 51% to more than $5.4 billion, due to the Activision Blizzard acquisition.

However, a strong quarter for Windows (up 11% to $5.9 billion) moved the PC operating system back into third place among Microsoft’s major product lines after it was briefly surpassed by games in revenue in the second fiscal quarter.

In advance of the earnings release, analysts expected the company to report earnings of $2.83 per share on revenue of $60.77 billion, up more than 15% from $52.9 billion a year ago.

Microsoft’s stock rose more than 5% in after-hours trading. It remains the world’s most valuable publicly traded company with a market capitalization of nearly $3 trillion.

LinkedIn co-founder Reid Hoffman — the entrepreneur, author, podcaster, venture capitalist and Microsoft board member — is on the front lines of the artificial intelligence revolution. 

Even as a pioneer in the AI field, it was a bit unusual (yet informative) today to see Hoffman sit down for a 14-minute interview with a virtual AI twin of himself —  informed by a customized GPT trained on 20 years of Hoffman’s podcasts, speeches and books. 

Call it Hoffman on Hoffman. 

In the second half of the interview, the real Reid Hoffman addressed a number of topics presented by his AI twin — regulation, ethics, jobs and the benefits of using digital twins to “make more human connections.” 

But one topic struck us as newsworthy, when the real Hoffman was asked about the pivot at Inflection AI (a company Hoffman co-founded) and the impact of co-founder and CEO Mustafa Suleyman’s move to Microsoft last month as the CEO of the newly formed group Microsoft AI. 

Hoffman called Inflection AI a “wonderful agent” that’s trained as much on emotion as it is on IQ.

“It’s a great consumer thing,” Hoffman told his AI interviewer. “One of the things we realized when we were doing it is, Mustafa really wanted to be building the consumer thing at scale. But the business was going to take years and years to develop. Whereas the developer business — the API business — is actually where the real startup opportunity is.”

With the move to Microsoft, Hoffman said that Suleyman can focus on the consumer opportunities where the mechanics of the business model do not need to be proven immediately. 

Meanwhile, Sean White — who was named CEO of Inflection AI last month and previously worked at Mozilla  — can focus on the new business direction of the startup. 

Hoffman said this insight was like discovering “magic that you hadn’t even thought was there.”

People on foot, riding bicycles, and even those cruising on electric skateboards crisscrossed over a busy highway between Microsoft’s old and new campuses on Monday as a dramatic new pedestrian bridge officially opened in Redmond, Wash.

The Redmond Technology Station Bridge, an 1,100-foot span that crosses more than 20 lanes of roadway beneath — and two sets of light rail track — is being ushered in as a greener, safer way to move the tech giant’s employees and other commuters and community members around what’s hoped will be a bustling Sound Transit station.

Under a series of large, interconnecting, white canopies that run the length of the bridge over SR 520, officials from Microsoft, the City of Redmond, King County and Sound Transit welcomed those who made the bridge a reality and those who will use it.

“We are very happy to offer this, to see this new way of traveling for our employees,” said Barb Wilson, a public affairs representative for Microsoft. “I think it’s going to be an immediate impact.”

Making it easier to get to work might be viewed as a way to lure more remote or hybrid workers back to the office more regularly. Or perhaps the bridge acts as a recruitment tool for Microsoft, leveraging whatever it can in the competition for regional tech talent.

“We have employees all over the region,” Wilson said. “For people to be able to hop on light rail, ride their bike, or be able to get the commuter bus or Metro buses, there’s all kinds of amenities, not just for our employees but also for their families, for the community.”

A large red ribbon was cut to officially open the span, and soon the bridge was carrying Microsoft workers gawking at the structure, taking selfies, or simply using it to increase their lunch options between the west and east campuses.

Microsoft paid for construction of the bridge, which features a wide walking path, two lanes for bicycles, benches, and native Northwest plantings along both sides. The bridge was designed by AECOM and engineered by Kiewit Engineering Group. The canopy structure was designed and engineered by FTL Design Engineering Studio (now part of TYLin). Microsoft is partnering with the City of Redmond to maintain it.

This bridge connects to Sound Transit’s new Redmond Technology light rail station, the SR 520 transit “flyer” stop, a regional bike trail, and Microsoft’s campus, which is undergoing a major refresh that highlights pedestrian and bike friendly amenities and accessibility for 47,000 employees.

The opening of the bridge is timed to the official opening celebration this Saturday of the light rail station, the last of eight stations on 6 1/2 miles of rail that make up the 2 Line between Bellevue and Redmond. The plan is to eventually connect the line to Seattle when light rail eventually starts running across Lake Washington on I-90.

Redmond Mayor Angela Birney, King County Executive and Sound Transit Board Chair Dow Constantine, King County Councilmember Claudia Balducci, and Sound Transit Interim CEO Goran Sparrman all praised the collaboration between Microsoft and various partners, including local government agencies and the Washington State Department of Transportation.

“Today’s grand opening is an important milestone in the effort to create a multimodal transportation system that supports the region’s economy and quality of life,” said Alice Jolla, chief accounting officer and corporate vice president at Microsoft. “This bridge is a symbol of Microsoft’s commitment to our local community.”

As traffic zipped beneath on a highway known to back up during busier rush hour traffic, the bridge felt like a floating respite for workers making the easy 2-minute walk from one side to the other.

Ron James, a security guard with Securitas, which patrols the Microsoft campus, was waiting with his bike for the bridge to open. He rides about 60 hours per week, and the bridge will improve many of his movements.

“We have an ops 2.0 over here,” he said pointing to the new east campus. “But our original ops building is over there,” he said, pointing at older buildings to the west. “We can get back and forth between the two a lot more. We could help answer different calls if we’re short on responders that day because this thing just bridged that gap.”

Keep scrolling for more images from Monday’s opening event:

Microsoft is making another big AI-related investment, this time pouring $1.5 billion into G42, a AI holding company based in the United Arab Emirates.

The deal marks Microsoft’s latest strategic move in the AI race and demonstrates the growing credibility of the Middle East tech ecosystem.

Founded in 2018, G42 has a bevy of companies across various industries including healthcare, oil and gas, and finance.

The Wall Street Journal described G42 in 2021 as “a private company that is single-handedly aiding the digital transformation of the Abu Dhabi economy with the blessing of its government.”

G42 has been scrutinized by U.S. officials due to ties with China. G42 said in February that it would pare back its presence in the country, Bloomberg reported.

The deal with Microsoft was “largely orchestrated by the Biden administration to box out China as Washington and Beijing battle over who will exercise technological influence in the Gulf region and beyond,” The New York Times reported Tuesday.

G42 will stop using telecom equipment made by China tech giant Huawei, as part of the deal with Microsoft, the Times reported.

“The commercial partnership is backed by assurances to the U.S. and UAE governments through a first-of- its-kind binding agreement to apply world-class best practices to ensure the secure, trusted, and responsible development and deployment of AI,” Microsoft wrote in a blog post.

Microsoft will get a minority stake in G42, and Microsoft President Brad Smith will join the board of G42 as part of the investment.

“We will combine world-class technology with world-leading standards for safe, trusted, and responsible AI, in close coordination with the governments of both the UAE and the United States,” Smith (below, said in a statement.

G42 will run its AI applications and services on Microsoft Azure “and partner to deliver advanced AI solutions to global public sector clients and large enterprises,” according to a press release. The two companies will also support a $1 billion fund for AI developers in the UAE and broader region.

Microsoft’s other substantial AI bets include its $13 billion investment in ChatGPT-maker OpenAI, and its recent hiring of key execs from Inflection.ai as part of a $650 million deal.

OpenAI CEO Sam Altman earlier this month visited with officials in the UAE to discuss a potential coalition for the AI industry, according to Bloomberg.

A few years ago, Microsoft researchers and data scientists used machine learning to help marine biologists analyze patterns in underwater recordings of beluga whales.

Upon learning about the project, another group asked if it would be possible to use a similar approach to analyze audio from the Syrian war, to detect the use of weapons banned by the Geneva Conventions. The answer was yes.

That’s the kind of inspiration that Microsoft’s philanthropic AI for Good Lab hopes readers will draw from its new book, “AI for Good, Applications, in Sustainability, Humanitarian Action and Health,” to be published April 9. 

“For us, it is really important to show real-world examples of how we can use AI to solve these problems,” said Juan Lavista Ferres, Microsoft corporate vice president and chief data scientist, who directs the AI for Good Lab. The goal is for other scientists and researchers to see, in these examples, new ways to use AI to solve other societal problems.

The book offers a series of deep dives on the lab’s projects, conducted with outside researchers, non-governmental organizations, and other experts.

The case studies show the potential of AI to do good in the world, but they also give a clear-eyed and practical look at the risks and limitations.

“We need to make sure that we understand the data that we’re using,” Lavista Ferres said. “This is, for us, why it’s so critical to work with subject-matter experts, to better understand the problems that we’re trying to solve.”

In advance of the book’s release, Lavista Ferres joins us on this episode of the GeekWire Podcast for a conversation about the lab’s work, the potential for AI to bring about positive change in the world, and takeaways for the rest of us as we look to apply artificial intelligence to our daily work and lives.

Listen above, or subscribe to GeekWire in Apple Podcasts, Spotify, or wherever you listen. Continue reading for highlights, edited for clarity and length.

The potential for AI to do good in the world: “Since the inception of AI, the broad majority of the use cases for AI have significantly helped society, and we expect these to even be broader. With more capabilities, including large language models, we’re now solving problems that before we couldn’t solve. I’m extremely optimistic about the uses of AI. … I think that we’re just starting to see the type of impact we can get from AI, and I hope in the next 5-10 years, we will see much more of the impact that this technology can have on society.”

One of the keys to a successful AI for Good project: “In order for us to have an impact, we need people to be using these models in a production setting. There’s a big difference between solving a problem in theory and solving a problem in practice. It’s important to work with organizations that have not only the subject-matter expertise, but also the capabilities to put these models into production. Our job is to help them solve these problems. But their job will be to eventually work with these models in production settings. And that’s challenging.”

The lab’s work with the Carter Center: “The problem that they’re trying to solve is to have a near real-time assessment of potential conflicts around the world. They get this information from news sources, sometimes in multiple languages, across the world. Usually they would have many analysts reading this information and trying to come up with with an assessment. We took that dataset that they’ve been using, and we used natural language processing. … These models were as good as these experts on classifying whether there was a conflict or not, or what type of conflict it was, which allowed these experts to be focused on what they do best, trying to see what they could do with that data. So that has been really impactful. They have all of this in production, and we continue to collaborate with them.”

The critical role of data, and the role of open datasets: “People say data is the new oil. Data is the new code. It is clearly the most important portion of an AI model. It is really important to make sure that we don’t introduce biases in the way that we collect the data. But there’s also a significant amount of open datasets out there. And that’s something that we also contribute to society whenever we work on these projects, when possible. … We’re not alone. There’s a whole open data movement where more and more organizations are open-sourcing their datasets.”

What’s next in the adoption of AI for good: “We will see many more tools that will allow anybody to do things that before would require coding skills, and we are seeing that already. We expect this trend to continue. More and more, it will become easier for people to use this type of technology to solve their problems. … As a society, we have a responsibility to maximize the use of tools, and minimize any potential use of this technology as a weapon. It’s critical for society to work together to make sure that this technology can be used for good.”

“AI for Good: Applications, in Sustainability, Humanitarian Action and Health,” by Juan M. Lavista Ferres, William B. Weeks and researchers from Microsoft’s AI for Good Lab, will published by Wiley on April 9, 2024.

Audio editing and production by Curt Milton.

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Microsoft comes under intense scrutiny and pointed criticism in a 34-page report released Tuesday by the Cyber Safety Review Board (CSRB), a group created by the U.S. Secretary of Homeland Security in 2021 to review major cybersecurity incidents.

The report focuses on a high-profile incident in May and June 2023, when the Chinese hacking group known as Storm-0558 is believed to have compromised the Microsoft Exchange Online mailboxes of more than 500 people and 22 organizations worldwide, including senior U.S. government officials.

The CSRB report takes Microsoft to task for its security culture, describing it as “inadequate” and saying it “requires an overhaul, particularly in light of the company’s centrality in the technology ecosystem and the level of trust customers place in the company to protect their data and operations.”

The report also criticizes Microsoft’s public communications, noting that the company waited until last month to correct a September 2023 blog post about the root cause of the breach after repeated questions from the board.

At the conclusion of CSRB’s review, the report said, Microsoft still didn’t know exactly how Storm-0558 obtained the critical 2016 Microsoft Services Account (MSA) signing key that was used in the 2023 intrusion.

At one point, the report says Microsoft’s leaders need to consider refocusing its product development, prioritizing security features over new product features, effectively reviving the spirit of the “Trustworthy Computing” initiative that Microsoft co-founder Bill Gates famously instituted in 2002.

The CSRB report reads, in part:

“The Board concludes that Microsoft has drifted away from this ethos and needs to restore it immediately as a top corporate priority. The Board is aware of Microsoft’s recent changes to its security leadership and the ‘Secure Future Initiative’ that it announced in November 2023. The Board believes that these and other security-related efforts should be overseen directly and closely by Microsoft’s CEO and its Board of Directors, and that all senior leaders should be held accountable for implementing all necessary changes with utmost urgency.”

Asked for comment on the report, a Microsoft spokesperson gave this statement:

“We appreciate the work of the CSRB to investigate the impact of well-resourced nation state threat actors who operate continuously and without meaningful deterrence. As we announced in our Secure Future Initiative, recent events have demonstrated a need to adopt a new culture of engineering security in our own networks. While no organization is immune to cyberattack from well-resourced adversaries, we have mobilized our engineering teams to identify and mitigate legacy infrastructure, improve processes, and enforce security benchmarks. Our security engineers continue to harden all our systems against attack and implement even more robust sensors and logs to help us detect and repel the cyber-armies of our adversaries.”

The statement added that Microsoft “will also review the final report for additional recommendations.”

Read the full report here.

Microsoft says it will offer its Teams and Office 365 separately for business customers globally, unbundling the two programs and expanding an approach that it introduced in the European Economic Area and Switzerland last year.

The company says Office 365 suites with Teams will no longer be sold to new business subscribers, but will continue to be available for existing customers that opt to continue using the bundled products, even upon renewal.

The moves follow the European Commission’s announcement last year that it was opening a formal investigation into Microsoft’s bundling of the communication and collaboration software into its business software suites. The EU investigation was sparked by a Slack complaint in 2020, prior to Slack’s acquisition by Salesforce.

Unbundling the programs is designed to “ensure clarity for our customers” a Microsoft spokesperson said via email. “Doing so also addresses feedback from the European Commission by providing multinational companies more flexibility when they want to standardize their purchasing across geographies.”

Critics call the move too little, too late.

“By simply extending the changes offered in Europe in August 2023, this announcement pays lip service to fair competition but leaves interoperability and licensing restrictions in place that prevent true customer choice,” said Ryan Triplette, executive director of the Coalition for Fair Software Licensing, in a statement.

The group has called on the FTC to investigate Microsoft’s licensing practices.

This week on the GeekWire Podcast: Reporter Kurt Schlosser takes us inside a Tesla Cybertruck, explains what it was like to drive one, and tells us how people reacted to the futuristic vehicle as it debuted on the streets of Seattle.

Also on the show, Kurt shares details from his recent story about Nala, the Seattle Police Department’s electronics-detecting police dog, and explains how these law-enforcement K9s are trained to find all sorts of devices.

And in our final segment, we hear a clip from comedian Pete Ballmer, the son of Steve Ballmer, about growing up as one of the kids of the former Microsoft CEO.

Subscribe to GeekWire in Apple Podcasts, Spotify, or wherever you listen.

KIRKLAND, Wash. — Credit the cloud, and the talent. The cricket is just a bonus.

Veeam Software, the top company by market share in data protection and ransomware recovery, has officially shifted its corporate headquarters from Columbus, Ohio, to the Seattle area, drawn by the close proximity of the major cloud providers and the deep pool of technical talent.

Its new home in Kirkland’s Carillon Point is part of a new era for the company. Veeam moved its headquarters from Switzerland to the United States following its March 2020 acquisition by private equity firm Insight Partners — a deal that valued the company at $5 billion.

Anand Eswaran, who joined Veeam as CEO in December 2021, previously worked out of Redmond as the corporate vice president of Microsoft Enterprise. After joining RingCentral as president and chief operating officer in January 2020, he ended up remaining in the region, rather than moving to the Bay Area, due to the pandemic.

“The plan was always to shift the center of gravity here,” Eswaran said in an interview at Veeam’s new headquarters. “At the end of the day, when you look at talent, when you look at core tech skills, when you look at the innovation landscape, our most significant partners are based here, as well — it just made sense.”

Veeam and Microsoft recently extended their strategic partnership with a five-year agreement to jointly develop AI solutions, integrating Veeam’s products with Microsoft Copilot and other AI services, while also jointly selling Veeam Data Cloud with Microsoft 365 and Microsoft Azure.

The company also partners with Amazon Web Services, Google Cloud, and Oracle, among others.

Veeam has more than 5,000 employees globally, in 50 countries, with U.S. offices in Ohio, New York, Georgia and Arizona. So far, the company has about 50 employees in the Seattle area, with plans to continue growing.

Beyond the market for data protection, the name “Veeam” might ring a bell for cricket fans.

The company sponsors the Seattle Orcas, the region’s new Major League Cricket franchise. Eswaran said the sponsorship goes hand-in-hand with its headquarters move and growing presence in the Seattle region.

Veeam has a full floor at Carillon Point, with the potential to expand in the future. The office includes a large executive briefing center. One benefit of the new space, including the proximity to the major cloud providers, is that customers and partners visiting the region can spend time at Veeam, as well.

Other key execs based in Kirkland include Matthew Bishop, chief operating officer, who was previously a Microsoft corporate vice president of worldwide commercial strategy and operations, and chief digital officer at RingCentral.

The market for cloud services is increasingly evolving into marketplaces, with customers seeking to use their vendor relationships with Azure, AWS, or Google Cloud to buy related services, Bishop explained. The proximity to the major cloud providers strengthens those relationships as those marketplaces become more significant to adoption.

In a report last year, IDC ranked Veeam as the top company in data replication and protection by market share, ahead of competitors including Dell, IBM, Veritas, Commvault, and others.

An August 2023 report by Gartner ranked Veeam as a leader based on its ability to execute, its customer growth and retention, its hybrid and multicloud support, and its large network of partners. Gartner cited “cautions” including what it described as Veeam’s slow response to key market trends, and overall complexity of managing its technology.

Earlier this month, Veeam surpassed $1.5 billion in annual recurring revenue for the first time.

The company’s growth underscores the growing focus on data protection and backup amid the rise of ransomware and other cyber threats. Veeam’s features include backup of virtual, physical, and cloud-based machines, with a variety of services for data protection, restoration, and recovery from attacks, including testing and verification.

Eswaran cited several key findings from Veeam’s 2024 Data Protection Trends Report, released in January based on a survey of 1,200 IT leaders and professionals in late 2023:

• 75% of companies experienced at least one ransomware attack in the last 12 months.
• 25% experienced four or more attacks in the last 12 months.
• 80% of companies paid the ransom, but 25% still couldn’t retrieve their data.

AI has changed the dynamics on both sides of the ransomware equation.

“It has significantly lowered the barrier of entry to being a bad actor. Anyone can create malicious code pretty quickly and try to do something with it,” Eswaran said. “It’s made the bad actors, the bigger ones, way more sophisticated.”

But AI has also bolstered the defense side, he said, helping Veeam mitigate ransomware risks through techniques like threat detection, malware analysis, and ensuring clean backups during the recovery process.

As for cricket, Eswaran grew up in India and is friends with members of the Orcas ownership group, which includes tech leaders such as Microsoft CEO Satya Nadella; Madrona Venture Group Managing Director S. Soma Somasegar; Icertis co-founder and CEO Samir Bodas; and GreatPoint Ventures managing partner Ashok Krishnamurthi.

The Orcas ownership group is working to bring a cricket grounds to Marymoor Park in Redmond.

“To watch the best of the best players in the world come and play here, for people like us who have grown up watching cricket, playing cricket, this is an absolute dream come true,” Eswaran said.

Microsoft unveiled what it described as its first AI-powered Surface PCs for businesses, the Surface Pro 10 and Surface Laptop 6, with Intel Core Ultra processors and Neural Processing Units that the company says will power advanced artificial intelligence applications and experiences.

The devices, set for availability in April, were announced Thursday morning as part of a virtual event. It’s the latest move by Microsoft to make its Copilot AI tools a standard for businesses, part of its broader competition with other enterprise tech providers including Google, Salesforce, Amazon, and others.

As part of the event, the company detailed ongoing integrations of AI features into Microsoft software including Windows, Teams, OneNote, and other applications widely used by businesses.

Among other features, Microsoft’s new Surface devices include the dedicated Copilot hardware key announced by the company earlier this year. Pricing for the devices starts around $1,200.

The company also said it will make its Microsoft Adaptive Accessories available for businesses.

Microsoft’s unveiling of the new devices comes as the Surface business attempts to recover from a recent slump. Revenue in the company’s devices division slipped to $2.4 billion in the six months ended Dec. 31, 2023, from $2.9 billion in the same period the prior year, according to a regulatory filing by the company.

Panos Panay, the former chief product officer in charge of Microsoft’s Windows & Devices business, left the company last year and took a job leading Amazon’s Devices & Services business.

Earlier this week, Microsoft named Mustafa Suleyman, the co-founder of DeepMind and a former GoogleVP of AI, to lead a new organization called Microsoft AI, focused on consumer AI products and research.

Editor’s note: This is a guest analysis post written by S. “Soma” Somasegar, managing director at Madrona Venture Group and a former Microsoft executive. GeekWire occasionally runs opinion and analysis pieces from members of the community.

Microsoft is a powerhouse in the enterprise and has always recognized that the consumer market is important for the company’s growth, but it has often struggled to win the right level of consumer mindshare.

With the company’s latest bet on world-class talent from Inflection.ai, Microsoft is setting its sights on taking its success with Copilots to the AI native apps that will dominate in the coming years.

Microsoft has pursued innovation and acquisition as routes into the consumer market in the past. Several years ago, we saw Microsoft flirt briefly with acquiring TikTok, the popular social media app that has captured the attention of millions of young users. Microsoft’s recent acquisition of Activision Blizzard complements the company’s already strong position in gaming. While niche to some, gaming is an incredibly valuable and important component of the consumer market.

But young consumer audiences use various social networking tools — Instagram, TikTok, and others —that typically have nothing to do with Microsoft. Microsoft is better known as a tool for getting schoolwork done!

To win, Microsoft wants to be front and center for the next generation of consumers. These young consumers will grow up and be enterprise users — users who want to use cloud, AI, and productivity tools. That’s where bringing on Inflection.ai co-founders Mustafa Suleyman and Karén Simonyan and several others from the team comes in. They have a clearly expressed goal to make a positive impact on every consumer with AI.

The next platform shift

Stepping back, we are in the midst of one of the biggest platform shifts in history.

The last two platform shifts were the cloud and mobile, respectively. Though a little late to the game, Microsoft successfully became a cloud computing leader. However, they did miss the mobile platform wave, which transformed how we communicate, work, shop, travel, and entertain ourselves. It was a costly miss, but Microsoft learned from that experience.

The company has been an early mover and arguably the most successful mover in AI. The partnership with OpenAI, the plethora of Copilots starting with GitHub Copilot, Azure as a key AI platform, and Microsoft’s approach to model-as-a-service all contribute to the thought leadership that Microsoft has clearly demonstrated.

Now, it rightfully wants to build on that and leapfrog the rest of the industry by delivering a personalized AI agent for every consumer. AI has the power to be a personal assistant, a coach, a companion, and what everyone is talking about now — an agent that acts on our behalf.

Even with all the focus on AI and the explosion of models and tools to tune and deploy them, I believe we are still very much in the early days and haven’t seen transformative applications in the AI era.

A good comparison here is that when the iPhone came out, it was a breakthrough device and a platform, but it was not obvious how it would revolutionize our lives. Established sites embraced this quickly. Facebook launched a mobile app and media sites rolled out mobile apps to access their content. These are akin to the copilots that work alongside existing products and are introducing people to what AI can do for them.

In the mobile era, it took apps like Uber and Airbnb, which transformed the transportation and housing industries, to show us the true potential of the new platform. Similarly, we have not yet seen the killer apps of AI, the ones that will make us wonder how we ever lived without them. We have seen glimpses of AI in voice assistants, chatbots, copilots, and recommendation systems, but they are still limited and fragmented. There is an enormous opportunity ahead.

The Inflection.ai team

So why Inflection?

Mustafa Suleyman and Karén Simonyan’s goal is to make a positive impact on every consumer with AI. But getting there is a massive task.

Executing this vision as a standalone startup is incredibly tough. Not impossible, but incredibly tough. And despite the more than $1.5 billion they have raised, their probability of success was unknown.

By some measures, Pi, their consumer-facing service, wasn’t performing at the scale they would need to break out as a startup. What they needed was a company with access to great AI talent, compute, data, customers, and very deep pockets aligned with that vision.

Microsoft is an investor in Inflection. I am sure the public company saw how the founders’ vision aligned with its goals. It seems like a brilliant move by Microsoft to recruit these visionary, technical, world-class leaders to give it a significantly higher probability of success with consumers.

One thing that is exciting to see both from Microsoft and other large technology companies is how they are being super creative to substantially increase the value for their customers. In the past, these companies would ask themselves — do we build, or do we buy? Now, they ask — do we build, do we buy, or do we partner? Microsoft has demonstrated success in all three.

Necessity is also the mother of all invention. The potential constraints by regulatory bodies with regard to an acquisition likely played a role in Microsoft’s creative partnership.

Microsoft’s partnership with OpenAI (with its ups and downs) has been a game-changer. Its acquisitions of LinkedIn and GitHub have been a spectacular success. The diversity of the company’s partnerships with different LLM providers (both proprietary and open-source) have demonstrated their desire to be a platform with the widest possible model-as-a-service capability in Azure.

There is an open question on why large technology companies like Google and Apple, who have more mindshare with consumers, are not yet at the forefront of reimagining what they could do with AI for consumers. I am confident these companies are hard at work. Unfortunately, Google’s execution has not been exemplary thus far. I am hoping that Apple will wow us all sooner rather than later.

Meanwhile, there is a vacuum, and Microsoft is doing everything it can to leapfrog.

I am excited to see some amazing innovation emerge from this new group to deliver more exponential value and unlock ground-breaking experiences for you and me and the more than eight billion consumers around the world.

Microsoft added some big names to its AI leadership Tuesday with the hiring of Mustafa Suleyman, the co-founder of DeepMind and a former Google vice president of artificial intelligence, to lead a new organization called Microsoft AI.

Suleyman, most recently co-founder and CEO of Inflection AI, will serve as a Microsoft executive vice president and CEO of Microsoft AI, reporting to Microsoft CEO Nadella and joining the company’s senior leadership team, according to a memo from CEO Satya Nadella made public by the company.

Microsoft AI will be focused on “advancing Copilot and our other consumer AI products and research,” Nadella wrote in the memo, referring to the company’s primary brand for its AI technologies.

Also joining the company will be Karén Simonyan, the Inflection chief scientist and co-founder, known for leading the development of AI projects including AlphaZero, AlphaFold, and WaveNet, among others.

Several others from Inflection will also be joining Microsoft.

“We have been operating with speed and intensity and this infusion of new talent will enable us to accelerate our pace yet again,” Nadella wrote. “We have a real shot to build technology that was once thought impossible and that lives up to our mission to ensure the benefits of AI reach every person and organization on the planet, safely and responsibly.”

DeepMind was acquired by Google in 2014. Suleyman left Google in January 2022.

Microsoft, which is competing against Google, Amazon and others for AI talent and innovations, previously contemplated creating a new AI organization as a landing spot for OpenAI CEO Sam Altman and others working for its key strategic partner when Altman was temporarily ousted by the prior OpenAI board last year.

LinkedIn wants to add a little more fun to its feed.

Posts on social media and a report from TechCrunch over the weekend revealed the Microsoft-owned platform may add several puzzle-based games to the overall LinkedIn experience, some of which are titled “Queens,” “Inference,” and “Crossclimb.”

“We’re playing with adding puzzle-based games within the LinkedIn experience to unlock a bit of fun, deepen relationships, and hopefully spark the opportunity for conversations,” a LinkedIn representative said in a statement.

It’s not hard to see why someone at LinkedIn might’ve hit upon offering a few unique gaming experiences as a way to draw in more users.

Casual games like Farmville are part of what put Facebook on the map back in the day, and millions of people visit the The New York Times website just to do the crossword or play Wordle. Casual games are a proven way to get people to spend more time on a given website.

There’s also an argument to be made that LinkedIn is in a unique position to capitalize on growth while X (formerly known as Twitter) is seeing lower user count numbers.

The barrier between LinkedIn and other social networks isn’t audience uptake; it’s the “social” part. Very few people seem to just hang out on LinkedIn unless they’re specifically discussing their jobs.

However, there’s a chance that could change.

As Slate’s Scott Nover pointed out last year, LinkedIn has become slightly more casual, and hasn’t adopted most of Facebook or X’s worst habits. For all its issues, LinkedIn is still very much a place where you go to talk directly to people, without any particular interference from bots, inscrutable algorithms, or random communities. In the great battle of 2020s social media, LinkedIn scored a lot of points by standing still.

It makes sense that LinkedIn would try to double down on that by providing more activities to get people to stop by LinkedIn for something besides work, and Microsoft has a long history of creating addictive casual games.

I have my doubts that LinkedIn will ever shake off its reputation for being slightly boring, but at a point in time when most other major social media platforms are actively infuriating, maybe “boring” has a role to play.

LinkedIn generated over $4 billion in Microsoft’s most recent quarter. Its revenue has steadily grown since Microsoft acquired it in late 2016 for $26 billion. The platform has more than 1 billion members across 200 countries and territories.

At the outset of their new book, “Big Bet Leadership,” authors John Rossman and Kevin McCaffrey identify three “mega forces” that they believe could define the years ahead for businesses and the economy:

1. Disruptive technologies such as generative AI and quantum computing
2. The aging of America’s workforce.
3. Increased spending on entitlement programs such as Social Security and Medicare, and the looming cost of serving the U.S. debt.

They write in the book, “These mega forces will feed into each other like a vortex, building an overriding theme for business and society—that of a chaotic environment of dramatic change with successful business operators realizing productivity and cost model advantages that separate them from their competition.”

Their thesis: companies that thrive in this chaos will be the ones that master the art of “big bets,” transformative moves that dramatically expand their capabilities and the potential of their businesses.

“Big Bet Leadership” is a playbook for systematically making those bets in a way that reduces risk and increases long-term flexibility, drawing lessons from the likes of Microsoft, Amazon, T-Mobile and SpaceX, while also leaning heavily on the first-hand experience of the authors in overseeing and implementing big bets.

Rossman is a former Amazon executive who was a key figure in launching Amazon’s Marketplace, with more than three decades in technology and business innovation in his career. He has authored books on digital innovation, including “The Amazon Way,” advised major companies, and founded Rossman Partners.

McCaffrey has served in strategic roles at companies including T-Mobile and Google, taking part in growth initiatives and transformations including efforts to expand T-Mobile’s “Un-carrier” initiatives beyond its core wireless business. He has also consulted with McKinsey & Co. He now works with Rossman Partners.

Big bets “come by lots of different names: a growth strategy, a market repositioning, a digital transformation, an AI strategy, an operating change,” Rossman explains. “These are all initiatives or strategies that have high potential for impact.”

Why focus on big bets now?

“We’re entering an era where more change is happening, and more disruption is happening,” Rossman says. “The ability to separate the future winners and losers is going to come from the ability to actually make bold moves. Paradoxically, we know that the vast majority of these big bets fail, but yet, we have to do more of them.”

“You can’t wait until you need a big bet to place it,” McCaffrey adds. “If you haven’t already positioned yourself by placing early bets that you keep small … once the industry trends start to become clearer, and the market opportunity becomes clear, it’s too late. Somebody else is going to take the opportunity.”

These are some of the keys to “Big Bet Leadership,” gleaned from the book and the podcast conversation with Rossman and McCaffrey:

• Take a systematic approach, managing a portfolio of smaller experimental bets to gain strategic flexibility, and establishing standard processes like dedicated teams and documentation to maintain momentum on big bets.
• Assign “single threaded leaders,” fully dedicating the best talent and leadership to each big bet through cleared plates and priorities, rather than overseeing big bets as a secondary duty or with divided attention.
• Clear obstacles proactively, gaining executive sponsorship to adjust policies that could inadvertently slow down big bets, such as procurement and IT procedures, before teams are formed and work begins.
• Maintain velocity by prioritizing big bets over day-to-day operations through dedicated resources and teams, as well as metrics to ensure they do not lose momentum through scope creep or competing priorities.
• Develop clear memos and documentation, including a process of critical thinking exercises to fully examine risks, opportunities, and stakeholder concerns before committing to large-scale plans or investments.
• Present three realistic future options, allowing stakeholders to critically assess the tradeoffs of each without being led to a predetermined solution, and surface concerns that teams can address before momentum is lost.
• Learn from failures by systematically deciding to continue investing in strategically important ideas, pivot based on learning, or end initiatives based on outcomes rather than confusion or lack of commitment.

“Big Bet Leadership: Your Transformation Playbook for Winning in the Hyper-Digital Era,” is available on Amazon. Also see John Rossman’s newsletter, “The Digital Leader.”

Audio editing and production by Curt Milton.

Listen to the full conversation above, or subscribe to GeekWire via Apple Podcasts, Spotify, or wherever you listen.