Deep Dive
What is Microsoft's current position in the AI race, and what challenges does it face?
Microsoft was an early leader in AI due to its multi-billion dollar investment in OpenAI. However, its AI products like Copilot have seen middling success, and the company faces pressure to show real results and adoption. Additionally, Microsoft is navigating a complex relationship with OpenAI while building its own internal AI team to potentially compete with OpenAI's models.
What regulatory challenges is Microsoft facing in 2025?
Microsoft is dealing with antitrust lawsuits, including a $1.27 billion dispute in the UK over cloud software pricing. The company is also under scrutiny from the FTC in the U.S. for alleged antitrust violations in its cloud business. The outcome of these cases could significantly impact Microsoft's operations and market position.
How is Microsoft's relationship with OpenAI evolving?
Microsoft remains OpenAI's biggest backer, recently investing $750 million in a funding round. While the relationship is complex, both companies publicly emphasize their partnership. However, Microsoft is also developing its own AI models internally, creating a competitive dynamic alongside their collaboration.
What is the outlook for Microsoft's Copilot AI assistant?
Copilot has been on the market for over a year but has seen limited transformative impact on work processes. Microsoft, as the largest enterprise software maker, is leveraging its sales team and bundling strategy to push Copilot adoption. The company aims to demonstrate significant results and revenue growth from its AI tools in the coming year.
How does Microsoft's video gaming business, including Call of Duty, fit into its overall strategy?
Microsoft's acquisition of Activision Blizzard, which includes Call of Duty, has not been transformative for the company. Video gaming is not a top priority for Microsoft, especially as AI dominates its strategy. Investors rarely focus on this segment, and the stock did not see significant movement after the acquisition.
What role might Elon Musk play in Microsoft's regulatory challenges under the Trump administration?
Elon Musk, who has a history with OpenAI and is expected to advise the Trump administration, could influence regulatory approaches toward tech giants like Microsoft. Musk's recent lawsuit against OpenAI, which includes Microsoft, adds another layer of complexity to the regulatory landscape.
What are the key factors to watch for Microsoft in 2025?
Key factors include the adoption and revenue generation of Microsoft's AI products like Copilot, as investors demand tangible results. Additionally, the evolving relationship with OpenAI and the outcome of ongoing antitrust lawsuits will significantly impact Microsoft's future trajectory.
- Microsoft's AI products (Copilot) have seen middling success.
- Microsoft's relationship with OpenAI is complex, with potential competition.
- Investors are expecting more substantial results from Microsoft's AI investments.
Shownotes Transcript
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Welcome to Tech News Briefing. It's Thursday, December 26th. I'm Belle Lynn for The Wall Street Journal. We're hearing from our reporters and columnists about some of the biggest companies, trends, and people in tech, and what could be in store for 2025.
Microsoft was one of the early winners of the artificial intelligence race, but rivals have threatened the tech giant's early lead, which began with its multi-billion dollar investment in OpenAI.
And beyond AI, Microsoft also has hardware, video gaming, and cloud businesses, and is facing various legal challenges to its dominant market positions. Our tech reporter Tom Dautin covers Microsoft, and he joins us to discuss what's ahead for the company next year.
So Tom, what do you expect will be in store for the tech giant next year? There's a lot of questions for the next year because a lot of things may come to a head that were set in play this year that haven't fully been resolved. And so first of all, just on the outset, the AI business needs to start proving itself more.
And there are a lot of products they have on the marketplace, specifically Copilot, which is their AI assistant for things like Word and Excel. And also they have one that's been attached to its Bing search engine. All that stuff has had like middling to low middling success. And investors have been OK with that because they're
It's early and they have seen growth in their cloud business Azure that they attach to AI, but there's going to be a lot more pressure on them to start showing real results and adoption of their AI co-pilot tools. That's one thing. And then the other thing is Microsoft is in this dramatic intrigue right now when it comes to their AI providers. They have this relationship with OpenAI, which is always complicated. And that OpenAI provides the foundational models for co-pilots.
But then they've also been building up this team internally that is supposed to, at some levels, compete with OpenAI and potentially build a model that is at the same level of quality as what OpenAI has built. The other big thing that Microsoft is going to contend with in the next year, in the coming year, is the suit by the FTC that it is violated antitrust law and specifically on their cloud businesses.
And we've seen all the other tech giants basically dealing with regulatory scrutiny, most famously Google. And now Microsoft, it's their turn under the spotlight. And how that plays out, if that even plays out, is going to be a major question for the company. But will the incoming head of the FTC want to take on this case that was started under a different administration or regime is totally up in the air. But if they do,
and they decide to press forward with the complaints against Microsoft, that will be an incredible distraction for the company and could have huge consequences depending on the results. So we will go back to antitrust in a moment, but going back to OpenAI for a moment, Microsoft is still the AI company's biggest backer. How do you think the relationship between the two companies might change over the next year?
Open AI is very publicly trying to remain on good terms with Microsoft. And you have Sam Altman at every conference that he goes to say, it's complicated, but for the most part, we get along really well. They're an extremely valued partner. And even in the most recent funding round, Microsoft put in around $750 million. So you
You can't say that things are all bad. Microsoft is competing with them on the product level. They sell competing products. From day one of this relationship, but definitely since the chat GPT moment,
The dynamic between these two companies has been one of the most fascinating things to watch in all of tech. And it's definitely stands to be the case next year as well. Okay, so let's go back to talking about AI tools for a moment. You mentioned Copilot already. Microsoft has said that it will transform the way people work. What's the outlook for Microsoft's Copilot AI assistant?
Copilot as a tool has been on the market for over a year now. Are there differences in the way people work in terms of another tool that exists out there to maybe help you do research or write emails? Sure. It's maybe somewhat on the margins or it works for a certain percentage of people, but they're the largest enterprise software maker in the world. And part of the reason is that they bundle stuff and also that they have a huge sales team. And
That's like the game. And they'll try very hard next year to keep that game alive and hopefully winning. So speaking of consumer, what about Call of Duty, which is arguably a very popular video game franchise that Microsoft has bet pretty big on, including with its acquisition of Activision Blizzard. How is its video game business doing? Activision, for all the attention that it raised because the government attempted to block the merger,
by and large, has not been that transformative to Microsoft. They would rather have the asset than not, but their stock didn't move a ton after the deal was finally allowed to go through at the beginning of the year. But when you look at the priorities for Microsoft, and especially since AI has become like the alpha and omega of their strategy, video gaming just doesn't really rank. And you rarely hear investors asking a ton about it.
Coming up, what do regulators have in store for Microsoft next year? And how might the new Trump administration impact the company? That's after the break. Amazon Q Business is the new generative AI assistant from AWS because many tasks can make business slow, as if wading through mud.
Help? Luckily, there's a faster, easier, less messy choice. Amazon Q can securely understand your business data and use that knowledge to streamline tasks. Now you can summarize quarterly results or do complex analysis in no time. Q got this. Learn what Amazon Q business can do for you at aws.com slash learn more.
Okay, so let's talk about the other challenges that Microsoft has faced over the last year. You started talking about antitrust in the United States, but also in the UK, Microsoft is facing this $1.27 billion dispute over how it charges customers that buy cloud software that rivals its own.
Where do you think Microsoft stands on antitrust lawsuits like these? Well, the stuff in the UK, they're paying a lot of attention to that because the UK and Europe in general, more broadly, tends to set a lot of the trends when it comes to antitrust. And their head of policy, their president, Brad Smith, has been on a charm offensive tour for the last couple of years trying to make good with European governments. You know, they've been signing all of these
commitments to build up cloud infrastructure in various countries in Europe, and will create jobs as part of that. So whether that mollifies regulators in these countries is very unclear. Let's talk a little bit more about the regulatory landscape. What kind of regulatory oversight do you expect that Microsoft might get under the incoming Trump administration?
Huge question. Everyone in Silicon Valley is waiting to see what the approach from the Trump administration is going to be towards the tech industry and tech giants specifically. The one X factor potentially in all of this is Elon Musk and the role that he will play as an advisor in the Trump administration.
Musk has a history with Sam Altman from their days co-founding OpenAI and in the most recent lawsuit that Elon and XAI have filed against OpenAI,
for breaching contract because they ended up becoming more of a for-profit than a non-profit. Microsoft was included in the suit. Okay, last one for you, Tom. What are you most keeping your eye on as we head into 2025 as it relates to Microsoft? AI products and whether they can get enough customers to...
businesses to sign up for these things is super relevant. And you're going to start seeing a lot more questions from investors if they can't. And you're going to want to see numbers. We don't have a ton of numbers yet on how many subscriptions they've sold, but this is supposed to be like big new revenue for Microsoft. And that's kind of like the rubber meeting the road
of the whole AI strategy is whether people are going to want to pay for this stuff. And we're at a point now where we really should start seeing that. And then the other thing is open AI and how that dynamic and relationship plays out. That was our reporter, Tom Dauton. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer, Catherine Milsop. Logging off, I'm Belle Lin for The Wall Street Journal. Thanks for listening.
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