As a village boy, I did come to the same conclusion that Microsoft made a mistake investing $billions and making OpenAI relevant. There are three fundamental ways to launch an AI upstream business: 

Partner with a company with a large user base. OpenAI’s ChatGPT partnered with Microsoft which has millions of users. 

Spend a huge amount of money via promos and advertisements to get data which will improve your AI models as quickly as possible. This is the Temu path; Temu uses AI to power shopping in its ecosystem.

Bake AI into existing in-house data. If you are lucky, and you have the data as Google does, you can launch your Bard equivalent once your code is ready. 

Without Microsoft, OpenAI would not have risen the way it did. It provided money, data and cloud hosting, and yet the same company it did all that is a COMPETITOR.  This was how I put it two weeks ago: “But capitalism does not stop there, as Microsoft tells its shareholders that ChatGPT’s OpenAI, a company which it has supported with $13 billion, is now a competitor. How can you invest $billions in a company and that firm later becomes a competitor? How was that type of agreement a possibility that OpenAI could unveil SearchGPT in a world with Bing? “

Google People, ex-Google CEO agrees: “When Microsoft did the OpenAI deal, I thought that was the stupidest idea I’d ever heard, outsourcing essentially your AI leadership to OpenAI and Sam and his team. And yet, they’re on their way to being the most valuable company,” Eric Schmidt said.

This comment reflects the broader industry debate about the risks and rewards of partnerships in AI. While Microsoft’s investment in OpenAI has yielded significant benefits, such as integrating OpenAI’s advanced models like GPT into its Azure platform and products like Microsoft 365 Copilot, Schmidt’s criticism hints at the underlying tensions in this partnership. It highlights the possibility that Microsoft may have made itself overly dependent on OpenAI for its future in AI, a technology seen as crucial for the next wave of computing innovation.

However, Microsoft’s partnership with OpenAI has so far paid off in many ways. For instance, Microsoft’s early investment in OpenAI gave the company access to state-of-the-art AI technology, which it has been able to integrate into its cloud services, productivity software, and AI-powered tools. This collaboration has helped Microsoft position itself as a major player in AI, competing directly with Google and Amazon in the cloud computing and AI markets.

[…]

Schmidt also pointed out that while Microsoft has invested heavily in OpenAI, it does not have exclusive control over the AI models that OpenAI creates. This could eventually place Microsoft at a disadvantage, especially as other companies and startups gain access to the same technologies that Microsoft helped fund.

Microsoft leadership should pray that no one goes after them as it is indeed possible that ChatGPT was used to write that agreement!

The partnership between Microsoft and OpenAI is one of the most fascinating and complex alliances in the AI industry, representing both collaboration and competition. Although it came with shared goals and has yielded early successes, former Google CEO Eric Schmidt has openly criticized the deal, calling it “stupid” in terms of strategy and long-term impact for Microsoft.

Schmidt’s comments during a recent interview with CNBC underline the intriguing nature of this partnership, where Microsoft and OpenAI are not only partners but also competitors, each seeking to dominate the rapidly evolving AI industry.

During the interview, Schmidt questioned Microsoft’s decision to invest heavily in OpenAI, describing it as “the stupidest idea I’d ever heard.” He reasoned that by outsourcing much of its AI leadership to OpenAI, Microsoft risked ceding control over one of the most important technologies of the future.

According to Schmidt, this move placed Microsoft in a vulnerable position, relying on a third-party entity to lead AI advancements rather than fully controlling its own AI trajectory.

“When Microsoft did the OpenAI deal, I thought that was the stupidest idea I’d ever heard, outsourcing essentially your AI leadership to OpenAI and Sam and his team. And yet, they’re on their way to being the most valuable company,” Schmidt said.

He said that Microsoft should have been more focused on building and advancing its internal AI capabilities rather than outsourcing such a pivotal part of its future to OpenAI.

This comment reflects the broader industry debate about the risks and rewards of partnerships in AI. While Microsoft’s investment in OpenAI has yielded significant benefits, such as integrating OpenAI’s advanced models like GPT into its Azure platform and products like Microsoft 365 Copilot, Schmidt’s criticism hints at the underlying tensions in this partnership. It highlights the possibility that Microsoft may have made itself overly dependent on OpenAI for its future in AI, a technology seen as crucial for the next wave of computing innovation.

However, Microsoft’s partnership with OpenAI has so far paid off in many ways. For instance, Microsoft’s early investment in OpenAI gave the company access to state-of-the-art AI technology, which it has been able to integrate into its cloud services, productivity software, and AI-powered tools. This collaboration has helped Microsoft position itself as a major player in AI, competing directly with Google and Amazon in the cloud computing and AI markets.

The partnership has also allowed Microsoft to differentiate its products from competitors by offering AI-powered enhancements that improve productivity and efficiency. For instance, the integration of OpenAI’s language models into Microsoft 365 through tools like Copilot has made it easier for users to automate tasks, generate content, and streamline workflows, giving Microsoft a competitive edge.

However, Schmidt’s comments raise important questions about the long-term implications of this arrangement. He implies that Microsoft may have risked losing some degree of control over the direction of its AI development, by aligning itself so closely with OpenAI, especially as OpenAI continues to grow its own brand and user base independently.

The Irony of Partnership and Competition

What makes the Microsoft-OpenAI relationship even more complex is that, while they are partners, they are also competitors in many respects. OpenAI, though benefiting from Microsoft’s backing, remains an independent entity with its own goals and ambitions. The AI models developed by OpenAI are platform-agnostic, meaning they can be used by other cloud providers like Amazon Web Services (AWS) or Google Cloud. This creates a situation where Microsoft is simultaneously a customer, investor, and potential rival.

OpenAI’s independence has also allowed it to create partnerships and business relationships beyond Microsoft, giving it the flexibility to operate as a neutral AI provider. As OpenAI continues to develop its platform and expand its user base, it could potentially compete with Microsoft in offering AI-powered services to businesses and developers. This dynamic of collaboration and competition creates a tension that underscores Schmidt’s critique.

Schmidt also pointed out that while Microsoft has invested heavily in OpenAI, it does not have exclusive control over the AI models that OpenAI creates. This could eventually place Microsoft at a disadvantage, especially as other companies and startups gain access to the same technologies that Microsoft helped fund.

NVIDIA Chips And the Stargate Deal

Further complicating the relationship is the looming infrastructure issue. Microsoft and OpenAI’s heavy reliance on NVIDIA for AI chips is another point of concern for Schmidt. Most of the world’s AI projects, including those led by OpenAI and Microsoft, require NVIDIA’s specialized GPUs, which are critical for training and running large AI models. Schmidt noted that companies are spending billions on NVIDIA’s chips, which may create bottlenecks or strategic vulnerabilities in the long term.

“If $300 billion is all going to Nvidia, you know what to do in the stock market. That’s not a stock recommendation,” he said, admitting that Nvidia is in position to benefit from the AI boom than any other company.

To address this dependency, Microsoft and OpenAI have committed over $100 billion to the Stargate project, a next-generation data center designed to meet their growing demand for AI computing power. Set to launch in 2028, the project is a shared effort aimed at reducing reliance on external providers like NVIDIA by building proprietary infrastructure.

While the Stargate project is a significant step toward reducing external dependencies, it also highlights the growing complexity of the Microsoft-OpenAI partnership. As they collaborate on this massive infrastructure project, both companies are also working on separate AI projects that could one day compete for market share and influence in the AI industry.

The Symbiotic Yet Tense Relationship

The irony of the Microsoft-OpenAI partnership lies in its dual nature. On one hand, Microsoft’s investment in OpenAI has allowed it to be at the forefront of AI innovation, integrating cutting-edge technology into its products and services. On the other hand, the very entity Microsoft has helped to elevate is becoming a powerful competitor, as OpenAI’s technologies are accessible to Microsoft’s rivals.

Despite Schmidt’s characterization of the deal as “stupid,” the partnership has so far been fruitful for both entities. Microsoft has been able to position itself as a key player in AI, while OpenAI has benefited from Microsoft’s financial and technical resources. However, as AI evolves, the tension between collaboration and competition will likely intensify, especially as both companies seek to maintain leadership in this rapidly advancing field.

Mr. Unyime Obot just made another donation to Tekedia Institute. Through his generosity, more young people will attend our world-class business education.  And we will continue our mission to discover and make scholars noble, bright and useful, within the domain of business and entrepreneurial capitalism. We thank Mr. Obot for funding the future.

His instruction to join our next academic festival which will begin on Sept 9, through this scholarship, is as follows: “Please, have the team choose young people who would otherwise not be able to afford this, but do have the capacity/capability to do big things.”

Ideas Worth Billions IWB Africa (on LinkedIn), a non-profit run by many young people across Africa, does all scholarship selections. Once they do, they will send us the list for enrollment.  If interested, apply.

Tekedia Mini-MBA attracts Learners from 42 countries, and more SMEs and professionals come here yearly than any university in Africa. Our product is knowledge.

The Private Equity and Venture Capital Association of Nigeria (PEVCA), in its midyear review and strategic outlook for 2024, expressed concerns that the recent policies of President Bola Tinubu’s administration may discourage investment into the country.

The report argues that these policies are not well-coordinated and could create an environment that hampers both local and foreign investments.

PEVCA’s analysis indicates that the administration’s policies reflect competing objectives, particularly between short-term revenue generation and the goal of creating a business-friendly environment. This conflict, the report suggests, may serve as a deterrent for investors looking for consistency and predictability in government regulations.

The report states, “The introduction of policies with competing goals and interests will remain a deterrence for investors. Policies lack consistency and, in some cases, appear to be more of a knee-jerk reaction rather than a well thought out plan. Specifically, a number of short-term revenue generation goals continue to compete with the goal of creating a favorable business environment that attracts investors.”

Short-term Revenue Generation vs. Investment Climate

One of the key critiques from PEVCA is that Tinubu’s administration is prioritizing short-term revenue generation strategies, which could undermine efforts to create a stable and attractive environment for investment. While boosting revenue is crucial, especially given Nigeria’s current economic challenges, the report highlights that these short-term measures often come at the expense of longer-term goals, such as fostering a thriving private sector and attracting foreign direct investment (FDI).

PEVCA notes that these short-term fiscal policies, designed to increase government revenue, conflict with the need for stable, transparent, and investment-friendly policies that encourage the entry and expansion of businesses.

Policies Mitigating Against Investments

Several policies were flagged by PEVCA as harmful to the investment climate. One of the most prominent examples cited is the expatriate levy, which was initially introduced for companies operating in Nigeria but later suspended due to pushback from the business community. The report also referenced the cybersecurity levy as another example of a policy that, while intended to raise revenue, could deter companies from operating in Nigeria due to increased regulatory costs.

According to the report, these policies exemplify a government that does not adequately collaborate with the private sector before implementing reforms. The lack of dialogue and engagement between the government and the business community is seen as a significant factor in the misalignment of policies with investor interests.

Governance and Delays in Appointments

PEVCA also pointed to the ongoing issue of key government agencies lacking leadership due to Tinubu’s decision to dissolve statutory boards across ministries, agencies, and departments in June 2023. The Securities Exchange Commission (SEC) is one such critical institution that remains without a board, leading to a stagnation of economic activities within these regulatory bodies.

According to the report, the absence of leadership in these agencies has created a regulatory vacuum, where key decisions that affect both local businesses and foreign investors are delayed. This has compounded the challenges facing the investment climate, as businesses lack clarity and confidence in the regulatory framework.

Economic Impact of Tinubu’s Reforms

Upon assuming office, President Tinubu implemented significant reforms in sectors like energy and foreign exchange, aiming to revitalize the Nigerian economy. However, these reforms have resulted in unintended ripple effects—notably, a surge in inflation and a rapid devaluation of the naira. As these reforms took effect within the first month of Tinubu’s administration, the shockwaves have contributed to economic instability, which has, in turn, affected business confidence.

To mitigate the fallout from these reforms, the administration has introduced various short-term revenue generation strategies. Among these is the controversial proposal to introduce a windfall tax on foreign exchange revaluation gains by banks, initially set at 50% but later increased to 70% by the National Assembly during deliberation. While this measure aims to generate immediate revenue for the government, economists warn that it risks alienating investors in the financial sector by imposing sudden and significant tax burdens.

In light of these developments, PEVCA’s report suggests that the short-term focus of the Tinubu administration may be at odds with the longer-term goal of establishing Nigeria as a prime destination for investment. The introduction of unpredictable levies and taxes, combined with the absence of leadership in key regulatory bodies, could further erode investor confidence in the country’s economic management, it said.

The association’s outlook highlights the lack of policy consistency as a major deterrent for both local and international investors, who typically seek a stable regulatory environment before committing capital to a market. The ad-hoc nature of many of the government’s recent policies, PEVCA argues, undermines efforts to attract sustainable investment.

Nigeria’s economic challenges, including a declining revenue base, are no doubt prompting the government to seek immediate fiscal solutions. However, PEVCA’s report highlights that these short-term revenue strategies, if pursued at the expense of creating a predictable and investor-friendly environment, could lead to a long-term investment drought.

For the Tinubu administration to regain investor confidence, PEVCA advises a more collaborative approach with the private sector, emphasizing the need for well-considered policies that align revenue generation with the broader goal of promoting investment. Failure to strike this balance, the report warns, may result in diminished foreign investment and stunted economic growth for Nigeria in the years to come.