How Microsoft’s Satya Nadella Became Tech’s Steely Eyed A.I. Gambler
Earlier this year, Satya Nadella hammered out a deal that surprised everyone outside his inner circle at Microsoft.
Mr. Nadella, Microsoft’s chief executive, had his eyes on a Silicon Valley start-up called Inflection AI. The company’s chief executive, Mustafa Suleyman, was one of the founders of the pioneering artificial intelligence company DeepMind. He had raised more than $1.5 billion in funding and hired top researchers for his new company, but he had a not-so-great reputation as a boss. Inflection also didn’t seem to make any money.
Microsoft still shelled out more than $650 million to license Inflection’s technology, hired most of its staff and put Mr. Suleyman in charge of a more than $12 billion chunk of Microsoft’s business. It was, to put it mildly, risky.
Risky bets on A.I. have become a habit for Mr. Nadella. Over the past five years, he has committed to investing $13 billion in another aggressive young company called OpenAI, even though it hadn’t yet made much money. And he told all of his lieutenants to find ways to build A.I. into Microsoft’s many, many products, even though the technology didn’t always work correctly.
But he had his reasons. Though it could be years before he knows if any of this truly pays off, Mr. Nadella sees the A.I. boom as an all-in moment for his company and the rest of the tech industry. He aims to make sure that Microsoft, which was slow to the dot-com boom and whiffed on smartphones, dominates this new technology.
Microsoft’s investors like the gamble so far. The tens of billions Mr. Nadella has spent on A.I. over the last two years has pushed Microsoft’s worth up 70 percent to more than $3.3 trillion, making Microsoft one of three companies (with the chip maker Nvidia, another A.I. star, and Apple) vying to be the most valuable publicly traded company in the world.
The notion that Mr. Nadella is a steely-eyed risk taker with a grand vision for A.I. can be hard to square with his history as a low-key boss in an industry full of corner office peacocks. A 56-year-old engineer who came up through the ranks of Microsoft to become its chief executive about a decade ago, Mr. Nadella was credited with restoring Microsoft’s luster after a yearslong slump under his more famous predecessor, Steve Ballmer.
Mr. Nadella still speaks like a passionate engineer. In a recent interview with The New York Times that was conducted over Microsoft’s Teams videoconferencing software, he lit up as he described investing in OpenAI because “it’s not like a Hadoop workload.” He said he chose to infuse OpenAI’s technology into Microsoft’s Bing search engine first because “the graph traversal is sort of graph unification.” (Translation: OpenAI had complex computing needs, and A.I. would eventually tie Bing to other programs.)
Mr. Nadella rid Microsoft of many of Mr. Ballmer’s mistakes, including writing off most of the disastrous $8 billion acquisition of the phone maker Nokia in 2014. He put Microsoft software on Apple iPads and iPhones, which Mr. Ballmer was loath to do. He embraced the concept of freely available open-source software, which Mr. Ballmer called a cancer, and he made Microsoft’s cloud computing business into a powerhouse.
But Mr. Nadella was still “looking to make some big bets, and he was exploring all kinds of different things,” said Penny Pritzker, the former U.S. commerce secretary who is on Microsoft’s board of directors. He paid $69 billion to acquire the video game publisher Activision Blizzard, despite considerable resistance from antitrust regulators around the world, and made a stumbling detour into the metaverse.
Then A.I. came along. It was, Mr. Nadella believed, the game changer he had been looking for.
In early December, Mr. Nadella met with Mr. Suleyman for hours in his office at Microsoft’s headquarters in Redmond, Wash. He also vetted Mr. Suleyman with Reid Hoffman, a Microsoft board member and venture capitalist who co-founded Inflection, according to two people with knowledge of the conversations. In February, he secretly dined with Mr. Suleyman on Microsoft’s sprawling campus.
Less than a month later, Mr. Nadella finalized the deal. He flew down to Silicon Valley, where Inflection was based, and waited in the wings of a Hyatt hotel conference room, as Mr. Suleyman told his employees that they were being absorbed into Microsoft, according to a person in the room. He said a “special guest” was on hand, and Mr. Nadella entered, according to a transcript.
As stunned employees processed the news, one of the braver hands asked how Inflection’s ambition would not be snuffed out by Microsoft’s bureaucracy.
The real question, Mr. Nadella retorted, was: “Do you have the courage to actually induce hunger in someone of our scale and size?”
“That’s like, why am I at Microsoft after 32 years?” he said. “Because I have the hunger to make sure this company stays relevant.”
The Soul of an Engineer
Mr. Nadella grew up in Hyderabad, India. His mother was a Sanskrit scholar; his father a Marxist economist and officer in India’s highly selective civil service.
He attended high school at Hyderabad Public School, a century-old institution modeled after Eton, where British royalty study, and he fell in love with cricket (he now co-owns the Seattle Orcas, of the new U.S. professional league). “All of us as kids were expected to have a real all-around education,” said Shantanu Narayan, the chief executive of Adobe who overlapped with Mr. Nadella at the school.
He came to the United States for graduate school — first computer science at the University of Wisconsin-Milwaukee, and later an M.B.A. from the University of Chicago Booth School of Business — and joined Microsoft in 1992 from Sun Microsystems.
He married Anu Priyadarshini, an architect he had known since childhood. When he learned her green card application could take half a decade, he turned in his own, coveted permanent residency and instead applied for a high-skilled worker visa. It was riskier because it was temporary, but it allowed her to join him.
In his memoir, he wrote that move gave him instant renown on Microsoft’s campus. People would say, “Hey, there goes the guy who gave up his green card.”
They both eventually got U.S. citizenship and had a son, who was born with cerebral palsy, and then two daughters. His son died in 2022.
Mr. Nadella has not said much publicly about his son’s death, but in a June 2023 episode of the Freakonomics podcast, he talked about it at some length. “He was the one sort of constant that gave us a lot of purpose,” he said.
Mr. Nadella didn’t spend much time working on the company’s flagship Windows and Office product lines. He mostly worked in underdog operations, like the Bing search engine and nascent cloud computing business.
When Mr. Nadella took over as chief executive in early 2014, he rapidly overhauled the almost 40-year-old company. He pushed Microsoft to embrace cloud computing and open-source software that customers could freely adapt.
Microsoft had long resisted that approach. But Mr. Nadella introduced a wave of open-source technologies, supercharging Microsoft’s cloud business. From 2015 to 2018, Microsoft doubled its market share in cloud computing, cementing its role as the No. 2 behind Amazon.
In 2018 he needed only 20 minutes to greenlight the acquisition of the world’s most important open source company: GitHub, the site where developers shared and collaborated on software code.
After executives spent years debating whether to buy GitHub, Nat Friedman, a former Microsoft executive who worked for Mr. Nadella for five years, said he pitched the idea to Mr. Nadella and other senior leaders at an annual executive retreat at the Suncadia Resort in the Cascade Mountains.
“Do we have the right to do this?” Mr. Nadella asked. In other words: Would people still use GitHub if it was run by Microsoft?
The executives debated the question for 20 minutes, Mr. Friedman said. Then Mr. Nadella slapped his hand on the table and said: “We should do it.”
Within weeks, Mr. Nadella agreed to buy GitHub for $7.5 billion.
The Birth of BERT
Mr. Nadella was surprised in late 2018 when Google unveiled BERT, an early version of A.I. technology that would power chatbots like ChatGPT.
Several BERT researchers had recently worked at Microsoft, and Mr. Nadella was pained to realize that Microsoft’s computer network was not powerful enough to build the advanced A.I., according to three people who spoke on the condition of anonymity to describe conversations with him.
Just replicating BERT took six months “because our infrastructure wasn’t up to the task,” Kevin Scott, Microsoft’s technology chief, wrote in a 2019 email to Mr. Nadella and Microsoft co-founder Bill Gates.
To make Microsoft’s cloud more sophisticated, Mr. Nadella considered an investment in OpenAI, a hot start-up exploring new approaches to A.I. Building what OpenAI needed would force Microsoft to step up its game.
But OpenAI was a risk. It began as a nonprofit organization and was still controlled by a nonprofit board that did not answer to investors. It had also just cut ties with Elon Musk, who had been OpenAI’s main benefactor.
“You can imagine the debates that we had internally about making a bet like that and taking that level of dependency,” said Microsoft’s head of business development, Jonathan Tinter. But Mr. Nadella believed OpenAI’s chief executive, Sam Altman, and his team were doing something fundamentally different — and better — than Microsoft.
“One of the things I love about Sam is every day he’s calling me and saying, ‘I need more, I need more, I need more,’” Mr. Nadella said. “I love these kind of people who are never satisfied.”
By March 2019, the OpenAI investment was in the works. At another Suncadia retreat, Mr. Nadella presented a simple slide that declared: “We will build an A.I. supercomputer.”
He said it would be expensive, possibly costing billions.
When Mr. Friedman, the Microsoft executive, asked colleagues sitting near him to explain the supercomputer, “they were just like, ‘Dude, I don’t really know.’”
A few months later, Microsoft announced its $1 billion investment in OpenAI. Microsoft got rights to OpenAI’s products and the innovative cloud customer that Mr. Nadella wanted, but no board seat at the upstart. The arrangement was so bizarre, few in the industry thought it would succeed. As one former executive said, it was a Hail Mary.
OpenAI Cracks Open
In 2021, OpenAI began to unravel. A group of researchers who developed the technology that would become ChatGPT left over concerns that OpenAI was favoring commercial ambitions over technological safety. With their departure, OpenAI lost a year of progress.
Inside Microsoft, few still understood Mr. Nadella’s bet on the little San Francisco outfit.
“We didn’t take OpenAI seriously,” said Xuedong Huang, a veteran Microsoft A.I. technologist who is now the technology chief at the video conferencing company Zoom. “It was a joke.”
While OpenAI floundered, Mr. Nadella took a detour into what was supposed to be the next hot thing: the metaverse. It was a flop. Microsoft’s metaverse product was expensive, and it didn’t sell well.
As the metaverse work fizzled, Mr. Nadella wanted to invest an additional $2 billion in OpenAI and was “shaking every bush in the company” looking for someone to infuse A.I. into their product line, Mr. Friedman said. He raised his hand.
The result was GitHub Copilot, which used OpenAI’s technology to automate code writing for developers. The product was a hit — attracting more than a million developers in a year — and cemented Mr. Nadella’s commitment to A.I.
It could, he believed, transform everything.
Let’s Bet the Farm
In August 2022, Mr. Nadella got a look at GPT-4, OpenAI’s breakthrough system that seemed to write like a human, and his excitement became a bet-the-farm conviction.
He wanted to put the new A.I. technology in everything Microsoft did, starting with its search engine, Bing.
Inside the company, people expressed doubts. Microsoft had a history of flops with its consumer products, from its Zune music player to the Windows Phone. And Bing was for learning facts. The new A.I. models often made mistakes or just made things up. It seemed like an odd combination.
But Mr. Nadella looked at it through a different lens: Microsoft may not gain share in search (and it hasn’t) but at least he’d force Google to spend heavily to defend itself. He was also signaling that with A.I., every old fight and every old bet was back on the table.
In November 2022, OpenAI introduced its ChatGPT chatbot. The buzz around it made Mr. Nadella push his lieutenants to think bigger. Scott Guthrie, a senior executive, said every week in late 2022 his team had to raise their estimate of the number of pricey, powerful Nvidia chips Microsoft would need.
In December, “I basically told the team, ‘I want you to come back with a plan that’s 10X bigger,’” he recalled. “They’re all going, ‘Huh!?’ because the plan that they had come up with was sort of bigger than they possibly could have imagined.”
Another Crisis at OpenAI
Last fall, Mr. Nadella’s bet on OpenAI nearly imploded. He had planned to spend the weekend before Thanksgiving cheering on India in the Cricket World Cup. But around midday on a Friday, he was asked to step out of a meeting to take a call: OpenAI’s board of directors had ousted Mr. Altman because they said they couldn’t trust him.
Microsoft had avoided mucking in OpenAI’s management out of a fear that antitrust regulators would think it controlled the start-up. But over that weekend, Mr. Nadella worked the phones with OpenAI’s board and its executives, trying to understand what went wrong and how it could be fixed. Ultimately, he offered Mr. Altman and any OpenAI employee a job at Microsoft. In other words, he was prepared to gut OpenAI if Mr. Altman wasn’t welcomed back.
OpenAI’s board promptly reinstated Mr. Altman.
Mr. Nadella said in an interview that he feared Mr. Altman’s ousting would send OpenAI’s staff fleeing to competitors. “If the best way for them to continue is to be a part of Microsoft, so be it,” he said.
The mess was a reminder that Mr. Nadella’s bet on OpenAI had left the tech giant uncomfortably dependent on the start-up.
(About a month later, The New York Times sued OpenAI and Microsoft for using copyrighted news stories to train their A.I. systems. Microsoft and OpenAI say their use of the content is allowed by the fair use doctrine.)
The attempted coup at OpenAI caused Mr. Nadella to focus more on Microsoft’s own A.I. work, said S. Somasegar, a former Microsoft executive now at Madrona Venture Group who speaks regularly with Mr. Nadella. And they needed to find ways to rely less on OpenAI.
Getting close with Mr. Suleyman’s Inflection AI could help fix the problem.
Mr. Suleyman’s company was already on Mr. Nadella’s radar because Microsoft was an early investor. But there were concerns about Mr. Suleyman’s management. After DeepMind was acquired by Google in 2014, workers there complained that he was a bully. Mr. Suleyman apologized, but he left the company.
Over a secret dinner at Microsoft’s headquarters, Mr. Nadella peppered Mr. Suleyman and his co-founder Karén Simonyan about how Inflection operated. By the end of the meal, he had made his call. He decided Mr. Suleyman had learned from his failures, and proved himself at Inflection. “I’m always evaluating people on their last artifact of actual work,” he said.
The deal was announced three weeks later. It wasn’t technically an acquisition, which could get bogged down in antitrust reviews, but it let Microsoft hire Mr. Suleyman and nearly all his staff.
Mr. Suleyman was put in charge of creating A.I. “agents” that act like personal online assistants, steering people through their daily tasks and even doing some of the thinking for them.
Mr. Nadella saw this as a dramatic change in how people interact with computers and a leap beyond what competitors were doing. He gave Mr. Suleyman immense resources to make it happen, including running many of Microsoft’s largest consumer businesses such as Bing. More than 10,000 people would work under him.
Mr. Suleyman had no experience running such a large organization, but Mr. Nadella said he had plenty of people who could help him. And he saw Mr. Suleyman as another visionary.
“‘This isn’t just about search,’” Mr. Suleyman recalled Mr. Nadella saying. “This is about the new platform of computing for the future.”
At least, that’s the bet.
