news

한어Русский языкEnglishFrançaisIndonesianSanskrit日本語DeutschPortuguêsΕλληνικάespañolItalianoSuomalainenLatina

In the competition in the global cloud computing market, Microsoft has successfully transformed its cloud services into a lucrative business by integrating OpenAI's artificial intelligence technology. Take TikTok as an example. According to a person who has access to internal financial documents,As of March this year, TikTok spent nearly $20 million per month on OpenAI's artificial intelligence model services through Microsoft, which accounted for almost 25% of Microsoft's total revenue from this business. At that time, Microsoft's annual revenue from this business was expected to reach $1 billion, or $83 million per month.

However, this success hides the risk of high customer concentration. TikTok and its parent company ByteDance are equally ambitious in the field of AI, planning to develop conversation and image generation software comparable to OpenAI, which may mean that once TikTok's AI technology matures, its dependence on Microsoft will decrease, leading to a rapid slowdown in Microsoft's cloud business revenue growth.

To mitigate this risk, Microsoft needs to expand the number and types of companies that buy this type of AI, and Microsoft is looking to other reliable corporate customers, such as Walmart and financial software company Intuit. These customers paid Microsoft millions of dollars per month in the first quarter to access OpenAI models. Intuit's entry is particularly noteworthy because the company previously spent mainly on renting Amazon servers.

At the same time, Microsoft is seeking a diversified strategy and is using AI technology to make money in a variety of ways. Microsoft's cloud services are not limited to Azure OpenAI services. The company also sells AI writing, coding and summarization capabilities, collectively called Copilot, to existing customers of Office 365 and other enterprise software. CEO Satya Nadella said Copilot's subscriptions have doubled in the past three months, and financial services companies are one of its main buyers.

Tiktok becomes Microsoft AI's biggest customer

According to reports, Microsoft has successfully seized customers and market share from its main competitors, Google, Amazon and Oracle. For example, TikTok originally mainly used the cloud services of Microsoft's competitors, but now it has turned to purchasing Microsoft's cloud services, which has brought huge revenue to Microsoft's cloud business.

Intuit has developed a range of artificial intelligence features that provide financial advice to customers based on their personal data, and the company previously spent money renting servers from Amazon. Intuit CEO Sasan Goodarzi said in May that more than 24 million customers have used these features since September, and Intuit plans to "accelerate investment in this area" in the coming year.

Walmart, a longtime Microsoft cloud customer, said it is using the technology to personalize shopping recommendations. Another customer spending millions of dollars a month on Azure OpenAI services is Abu Dhabi-based G42, which previously announced a partnership with OpenAI to develop artificial intelligence for clients in the Middle East.

It is not clear whether Walmart or TikTok are using Azure OpenAI services to improve their own competing AI models, and spending with Microsoft could decrease once their models mature. Using OpenAI's technology to develop competing AI violates OpenAI's rules, but many customers do so anyway, the report said. OpenAI does not appear to be enforcing these rules, perhaps because it has been accused of violating intellectual property rules in training its most advanced AI.

Last year, ByteDance was reported to be using OpenAI’s GPT-4 model to train its internal AI models, in part by having OpenAI’s chatbot generate snippets of text that ByteDance then fed into its own models. In response to the report, ByteDance said at the time that it was adopting OpenAI’s model “to a very limited extent” to develop its own models.

Facing the risk of high customer concentration, Microsoft seeks to expand its customer base and diversify its profit methods

However, Microsoft has achieved profitable growth with the help of OpenAI artificial intelligence, and TikTok and other major customers are key, but Microsoft faces the risk of high customer concentration. To meet the market's high expectations for Microsoft's business, Microsoft needs to continue to attract and retain more major customers. Because investors require it to deliver on its promises about the prospects of this business. Previously, the company has spent tens of billions of dollars to fund OpenAI's technology and the data center servers that process it. It is widely expected that these investments will eventually turn into profits.

On Tuesday, Microsoft released its financial report showing that its overall cloud revenue sales in the second quarter grew 29%, lower than market expectations. Its stock price fell by more than 7% after the market closed. Amazon, Datadog, and Snowflake followed suit after the market closed. Microsoft's stock price fell by more than 2.5% in early trading on Wednesday.

Google Cloud sales also grew 29% in the June quarter, but the business is much smaller than Azure, meaning it is losing market share to Microsoft. Despite the negative market reaction, Microsoft remains optimistic and said it expects Azure revenue growth to accelerate next year.

Microsoft is using artificial intelligence technology to make money in a number of ways.In addition to the Azure OpenAI service, Microsoft is also selling AI writing, coding and summarization capabilities, collectively known as Copilot, to existing customers of its Office 365 applications and other enterprise software. On Tuesday, CEO Satya Nadella said the number of customers buying 10,000 or more Copilot subscriptions doubled between the March to June quarter. Financial services companies have been among the biggest buyers, but it’s unclear how big the overall business is.

Microsoft also takes a percentage of OpenAI’s sales of models directly to businesses, which unexpectedly surpassed Azure’s OpenAI service this year, and generates billions of dollars in revenue each year by renting servers to OpenAI (albeit at low margins) so that the startup can run ChatGPT and develop related technology.