Microsoft reuses its OpenAI playbook

Let’s say you want to buy a company. Said company wants to sell, and you could afford it. But there’s one big problem: regulators really don’t like when you buy companies. You know they’ll fight like hell to block you from buying this one. What do you do?

You do what Microsoft CEO Satya Nadella just did to Inflection, a would-be OpenAI challenger that raised hundreds of millions of dollars and is, for all intents and purposes, no more. This week, both companies announced that most of Inflection’s staff is joining a new AI division at Microsoft led by co-founder Mustafa Suleyman, who now reports directly to Nadella. The only co-founder of Inflection who will remain on the startup’s board is noted Microsoft board member Reid Hoffman.

In Inflection’s and Microsoft’s posts about the news, both companies are careful to telegraph that this is not technically an acquisition. Nadella’s note to Microsoft employees calls it an “organizational update.” Inflection’s post leads with its “plan going forward” to pivot to an enterprise business that is, conveniently, entirely dependent on Microsoft. Reporting on the deal says that Microsoft is paying a licensing fee of $650 million to use Inflection’s models — just enough to ensure that Hoffman and the startup’s other investors get their money back.

So, here, we have Microsoft paying a lot of money for Inflection’s people and technology. It’s just not buying the equity of Inflection or technically acquiring its IP, which it has made effectively worthless anyway. Sorry, Lina Khan, nothing to see here!

Beyond the obvious game that Microsoft is playing with regulators, the demise of Inflection shows just how difficult it is to build a business around foundational AI models. Inflection’s Pi chatbot apparently had 1 million daily users and no real revenue to speak of. The company had recently been talking to investors about raising more money and clearly didn’t see a viable path forward as an independent rival to OpenAI and Anthropic.

Now, Suleyman is a “CEO” inside Microsoft reporting to the CEO and managing at least one other “CEO,” ads and web services chief Mikhail Parakhin — a dynamic that is only normal inside a conglomerate as sprawling and bureaucratic as Microsoft.

As my colleague Tom Warren noted during the OpenAI board coup saga, Sam Altman was going to get a CEO title if he had actually gone to Microsoft at the time. It signaled that Microsoft was treating the hiring of OpenAI’s employees “like a big acquisition.” This time, it’s Inflection getting that treatment. But it’s not an aquisition! Right.

I’m reminded of a quote from Nadella in Elon Musk’s lawsuit against OpenAI that has been making the rounds this week: “If OpenAl disappeared tomorrow, we have all the IP rights and all the capability. We have the people, we have the compute, we have the data, we have everything. We are below them, above them, around them.”

When you find a playbook that works, rinse and repeat.

My notes on what else is happening in tech right now:

Some interesting career moves I’ve noticed recently:

That’s all for this issue.

As always, I appreciate your feedback and tips. You can email or ping me on Signal.