Declaring “the age of AI is upon us and Microsoft is powering it,” CEO Satya Nadella used this week’s earnings call to try to shift the conversations about his company from layoffs and slowing growth rates to a bullish future driven by Microsoft’s determination to set the world-shaping AI agenda.
It was a much-needed public statement of Microsoft’s future intentions because, as I discussed in some detail in yesterday’s Cloud Wars Minute video, Microsoft’s $100-billion cloud business is decelerating, and not just because of the uncertain global economic environment.
The competition Microsoft is facing from not just Amazon’s AWS but also in particular from Google Cloud and Oracle is becoming much more intense as those companies offer business customers newer and more compelling cloud-based solutions for the new world of digital business.
So Nadella used the Jan. 24 fiscal-Q2 earnings call to hammer home Microsoft’s AI achievements to date — centered on its close affiliation with the global ChatGPT phenomenon — and proclaim its intentions for the future.
“The next major wave of computing is being born as we turn the world’s most-advanced AI models into a new computing platform,” Nadella said on the call, with a promise that Microsoft intends to take full advantage of that inflection point.
“We’re going to lead in the AI era, knowing that maximum enterprise value gets created during platform shifts.”
While Nadella did an effective job of offering a glimpse into the new AI imperative at Microsoft, I believe he and the company need to do a much more effective job of articulating how it plans to orchestrate the twin dynamos of AI and cloud for customers:
- What this “next computing platform” is replacing — is it the cloud?
- If not, what is the current “computing platform” that the “next computing platform” of AI will displace?
- With this ascension of AI within Microsoft, is the Microsoft Cloud going to become the delivery vehicle for AI?
- Is it a companion to the AI computing platform?
- If so, in what way?
- Or, is AI going to enrich the Microsoft Cloud and make it even better?
- Again, if so, in what ways?
Setting aside, for now, those extremely important questions, let’s take a deeper look at how Nadella framed the AI opportunity. The first involved an intriguing use of the sometimes-fuzzy term “nonlinear.” As used in this upcoming comment from Nadella, it means, I think, that after a few years’ worth of hard work building deep AI capabilities into wide-ranging parts of the Microsoft Cloud tech stack, some big breakthroughs have occurred.
“We are witnessing nonlinear improvements in the capability of our foundation models, which we are making available as platforms,” Nadella said.
“And as customers select their cloud providers and invest in new workloads, we are well-positioned to capture that opportunity as a leader in AI.”
This next comment was hardly subtle and certainly needs no interpretation from me.
“We have the most powerful AI supercomputing infrastructure in the cloud,” Nadella said. Is that true? Well, I’m open to hearing from any company that feels it can top what Microsoft’s built.
“It’s being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT.”
More than 200 customers have already begun using the Azure OpenAI service, Nadell said, “and we will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time.”
And while I’ve pointed out in recent pieces the significant growth-rate moderations in various parts of the Microsoft Cloud business, I also want to share this compelling growth nugget offered by Nadella during the call.
“Azure ML revenue alone has increased more than 100% for five quarters in a row,” Nadella said, “with companies like AXA, FedEx, and H&R Block choosing the service to deploy, manage and govern their [AI] models.”
My goodness — five straight quarters of 100% revenue growth for an Azure service. Kinda reminds you of the overall Azure business of just a couple of years ago.
And I look forward to hearing how Nadella & Co plan to position this new high-growth AI business with the $100-billion Microsoft Cloud. Because the big questions are:
- Does Microsoft plan to lead in both?
- And if so, what are the specific benefits to customers?
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