Microsoft CEO Satya Nadella Live on TBPN

Everybody describes even the intelligence we have, which has been exceptional, as jagged. It's not as if the jags are getting worked out. First step to me is even to get to broad intelligence. Forget sort of general intelligence. We've got to get rid of these jagged problems. We're ready for our first guest of the show, Satya Nadella, CEO of Microsoft. Welcome to the show, Satya. Great to see you. I didn't know you were here. Great seeing you. Thank you so much for doing this. Please, I think there were a ton of bullet points in the announcement today. Can you just zoom out and explain it to me like I'm five? What actually happened? What actually changed? Because you've been in partnership with OpenAI for six years now, but this feels like an important moment. What happened? Yeah, look, first of all, it just feels, yeah, you said it right, it's an important moment and the story continues. But the story actually got started even the OpenAI one. I've known Sam for a long time since his first company, pre-YC days. All the way back then, wow. That's right. The double polo days. I remember him being at WWDC, presenting in the double polo. It's iconic, but I didn't realize that he was doing business with them back then. And it started, I think, in 2016. In fact, we were. Azure was the first cloud provider when OpenAI got started. In fact, I think Elon sent me the mail asking for Azure credits. Don't laugh. So that's how it got started. He's like, hey, I have this non-profit. Yeah, yeah, come on, man. And got it on the hat. And they were obviously into reinforcement learning. They were doing Dota and all of that stuff. And then at some point it reached where I think they went off. I think they went to other clouds. And so I lost touch for a while. And then I think in 2019, Sam came and talked about, hey, we're going to really, we think that scaling stuff works. I forget now. It's a little hazy when I read the paper. In fact, the paper was written by Dario, Ilya, the scaling laws paper. And the thing that Microsoft has been obsessed since Bill started at Microsoft Research in 95 is natural language. It's just being the thing. We're an office company. We're a knowledge work company. And so we've always thought about text and AI as applied to text and natural language. So you could say it's the prepared mind when sort of Sam said, hey, we're going to go take a run. You ought to be on it. That's sort of what led to really coming together on this. It was a research lab. It is a non-profit. As opposed to if they had stayed on the previous tech tree path of, they were doing some robotics and were doing some video game stuff and Dota 2. That doesn't jump out to you as immediately relevant. It's interesting you bring that up because obviously RL has come back in a big way in relation to sort of these large language models. But yeah, this is the funky path dependent way things happen because I don't think I would have gone in full on to say, hey, let's go partner with these guys, build a computer that scales it if it's not natural language. But I'm glad we started there and then RL now is improving the quality of these models. How big of a deal was writing a $1 billion check back then? I mean, it's a big company, Microsoft. We think it makes revenues around a billion dollars a business day. Was it one day of work for you? Or was it weeks of negotiation? Seriously, did you build memos? Like, did we build Excel sheets? Like, what were you thinking? Even at Microsoft, you kind of have to get a board approval. Just go throw a billion dollars out there. But yeah, I must say it was not that hard to convince anyone that this is an important area and it's going to be risky. Like, I mean, in retrospect, I mean, who would have thought, hey, I didn't put in that billion dollars saying, oh yeah, this is going to be one of a hundred bagger. Right, I mean, that's not like what was going through our heads. This is a partnership that, I mean, by the way, remember, this was a non-profit, right? And I think Bill even said, yeah, you're going to burn this billion dollars, right? And yeah, we kind of had a little bit of high risk tolerance. Totally, yeah. And we said, we want to go and give this a shot. And then, of course, we subsequently, you know, here we are at GitHub Universe. In fact, this is probably the place where that billion to 10 billion happened because in 21 is when I first saw GitHub Copilot. Sure. And I said, man, this is working. This is a year before the release. No, actually, in fact, I was fact-checking my thing. I think GitHub Copilot launched in 21, ChatGPD in 22. Sure. And if I remember right, 23 is the blip, the November blip with OpenAI, and then everything has been smooth since then. The blip. Simple, just a blip. Nicest way you could put that. That's fantastic. Yeah, so that makes a ton of sense. Obviously, it's been a wild ride up and down. You started with just natural language. Let's predict the next word. Now, let's rewrite the entire global economy. How do you think about the territory that you at Microsoft have kind of claimed, and what do you want to hold on to? What's most important to map out where Microsoft, where the edges of your territory are, and then where founders and other business people can build in partnership with you? Yeah, so if you take, I always say Microsoft's a platform company and a partner company. We define platforms as where the value capture above the platform is higher than by the platform. That is kind of who we are, and GitHub is a great place. So if you think about, even at GitHub Universe today, it's interesting, right? As you said, we first started by saying, hey, code completion. Then we said, let's chat. Instead of getting distracted, stay in the flow of coding, you bring the information to the flow, and that chat became the thing. Then we said, agent mode. Then we said, hey, let's have autonomous agents. And then, now we have multiple autonomous agents working across all these different branches, then bringing the PRs to me, and so with this entire conference is about what we call Agent HQ, and mission control where you will have Codex, you have Cloud, you have Grok, every model you want, each working across their own branches. Then you have the IDE, so you can bring up VS Code where you can do the diff on each of the branches output, and then the story goes on. So therefore, to me, building a system that really brings the innovation across the ecosystem into some kind of an organizing layer is what platform companies do well. Have you seen anyone here that you think might be working on AGI? Do you have a personal definition for AGI? Yeah, if you look at pretty much all the deal points, it keeps coming back to this moment when AGI will be declared, right? There'll be a panel of experts, maybe that panel is still being decided, but a lot of experts today have differing definitions, so I wanted to get a better sense of how you imagine that kind of decision-making process will go when the time comes. And we'll put you guys on the panel. We've been doing evaluations on AGI, specifically around comedy. Hand it right side in front of you. Comedy event. To me, I think, first of all, I think one of the reasons why, quite frankly, both Sam and I, I think, agree on this, which is it's become a bit of a nonsensical word. I mean, it's just changing, and everybody defines it differently. And we now know what the issue is, right? We know everybody describes even the intelligence we have, which has been exceptional, as jagged. Yep, yep. So spiky, yeah, or spiky intelligence. All right, and so if you sort of say, well, we have spiky intelligence, and in fact, I think Andrij Karpathy's point in one of the podcasts recently, which is a good one, which is even if you're having exception, let's call it exponential growth in one of the spikes, it's not as if the jags are getting worked out. That's the nines problem, right? That is, each nine is maybe linear, even sub-linear problem, right, in terms of rate of progress. So first step, to me, is even to get to broad intelligence. Forget sort of general intelligence. We've gotta get rid of these jagged problems, and that, I think, is the first place to do. So if you ask me, I think what may happen is we will achieve more robustness, let's call it that, for different systems, right? So coding is a good one. I think the entire goal with GitHub and GitHub Mission Control and AgentHQ is can I, just like how I used compilers, can I use agents to generate better coding artifacts? Today, coding, I mean, so I sometimes think vibe coding is sort of a slightly unfortunate term because it does lead to a lot of swap, right? I mean, it's kind of like, I'm sure you code away and then you lose control of the project and then you gotta put everything back into a markdown, and so. Yeah, traditional knowledge work that's happening in the office suite, it's not like you want the biggest Excel model, right? You want the one. But even Excel, it's a classic one. In fact, one of the other things that's happened is even when I see Microsoft 365 Copilot, man, the amount, just like right now, the number of repos on GitHub is exploding. The other thing is everybody's generating PowerPoint and slide decks and sort of Excel models. The problem with Excel models is you know when intelligence has created Excel models. I mean, it is like a thing of beauty, right? Functions are clear, the formulas are there, even the formatting and the support and all that stuff. And you can iterate on it. Yeah, it tells a story. It's not like a one shot. And I wanna change, I can't go back and say zero shot the entire thing. So in fact, the agent mode in Excel which I like is it understands Office.js, it puts the formulas, I can then iterate like I iterate on GitHub Copilot. So those systems, so if you ask me about first, how do you get rid of this jagged intelligence problem is you build a great knowledge work system that is multi-agent, multi-model, multi-form factor, get to a great benchmark in an eval where you can trust it at two nines, three nines, four nines and until you achieve that, you're not gonna be able to move and say, hey, we have anything like general intelligence. Yeah, it feels like there was a lot of uncertainty in the tech community around, oh, is super intelligence gonna come out of the lab tomorrow and there's gonna be this fast takeoff. Now it feels like there's more opportunity both for Microsoft to add those nines to products that you have and then also to entrepreneurs who are building products maybe on top of Microsoft. How are you thinking about the entrepreneurial opportunity in the age of AI? I think that's a very good point because at some level, if you sort of buy the argument I made, there is a lot more invention to happen. By the way, the other thing that we should also talk about, I always say to this too, praise all the conventional wisdom is, oh, intelligence is just simple, straightforward, log of compute, so throw more compute in here. More energy. Who the heck knows, man? One of the researchers comes from here, comes out of here and says, you know what, I got it. H. Nick Wise has compute. Any of you guys have thought about it? Like, that's a game changer. Oh, by the way, we're all excited about reinforcement learning. Guess what? Pre-training is a more efficient form of training because you can advertise it. I think pre-training will have new breakthroughs. Mid-training will have new breakthroughs. RL will continue to improve. We will then have to add more innovation to it. And by the way, this is another part of this partnership, which is I'm glad OpenAI is continuing to do great work. Jakob, Mark, and others are great, and we'll partner with them and we'll continue to do so. And Mustafa's built a world-class team, right? You know, Karen, Amar, Nando, these are, I mean, we have now three cool models, whether it's speech or image or text, and we want to continue to innovate, so we'll write our words as well. Yeah, how are you thinking about the interplay between OpenAI and what you do internally at Microsoft? So are simple, are there certain things you can take your foot off the gas because you're like, actually, OpenAI's got that handle? Or do you want a duopoly, like, actually, we're gonna fight it out on everything? I'm much more, like, again, my mindset is all platform, man. Like, hey, on Azure, do you run Windows? Yeah. Do you run Linux? Yeah. Do you run SQL Server? Yeah. Do you love Postgres? Absolutely. .NET, Java. Hey, I'm happy with OpenAI. I would love to have Anthropic, MAI, Rock. Anyway, if Google wants to put Gemini on Azure, please do so. What is that like culturally? Like, what does it mean for the next Satya Nadella? Somebody who's working their way up in Microsoft, do they need to be, okay, I'm building something internally, but my company isn't gonna favor me? I need to fight it out with all my competitors across? We all grew up in that culture where it doesn't mean, because it's always we're gonna bring our pieces together. Sure. We are going to innovate across these scenes. Yeah. But as a platform company, you kind of want to support everything. I mean, like most people don't, Office was born on the Mac before Windows was even. Yeah, if you don't give people choice, developers here, like, will churn, right? They'll find other platforms, right? The concept Bill had when he started Microsoft was, hey, we're a software factory. We love all software categories, and we're just gonna go create software. Yeah. And so to me, if you definitely want to sort of have that same attitude to innovation, we definitely need to stitch our stuff together so that they come together to solve bigger and greater problems. But it doesn't mean we can't create opportunities. And in part, the other thing that I grew up, like, for example, building SQL Server with SAP. And so we've always partnered, and our Intel Microsoft, right? I mean, we don't have the PC industry, but it was called the Grove Greats model. That's a good model to create value. Do you think that there's increasing returns? This is gonna sound like a loaded question, but I promise you it's not. There's increasing returns right now to being a deals guy or innovating on the deal structuring side. And what I mean by that is there's all these difficult problems to solve with energy and data centers. And it feels like we, there's innovation in tech that we normally think of as like the code or the algorithm or the design of the system. But then there's also this difficulty sometimes to just marshal the resources. And is that like a new phenomenon? Has that always been true? Is there, if somebody's pursuing a career in tech, is becoming a great deals guy or deal maker like an important path now? Yeah, I was just thinking about it, man. Like, which is, yeah, you have this great investment and it has a great return and no carry all, all the value goes to my shareholders. That's awesome. Maybe we should start a venture. You might be well there. I think the thing you're touching on is something that actually platform companies should think about, which is what's the ecosystem, upstream and downstream, right? To your point right now, we have to, as an industry, I mean, the reality is let's take power, right? Which is if they sort of say, intelligence is about tokens per dollar per watt, we've got to get efficient on all of it. In order to get more efficient on it, you got to really think about, even in our own industry, the token factory itself, really getting better order of magnitude. This is like, again, a renaissance time for systems architecture. And so we're, you know, obviously NVIDIA is doing great work, AMD is doing stuff, Broadcom's doing stuff, all of us are doing great work to just push that. Then the next barrier is going to be, man, can we generate energy faster? Can we build faster? Can we build the cooling? I mean, like, I now know more about campus cooling systems than I ever thought I'd know, right? I mean, and these are all choke points. How much do you want that to live within Microsoft versus you want to just be a buyer and all the different power players are out there building nuclear, wind, solar, and you're just dealing with it at a higher level of infrastructure? Sure, the vast majority of this infrastructure now, now that, you know, if you think back at it, right, our data center builds, mostly we build and we lease some because no one was in the business of building at the scale at which we were building. But now, I think there's going to be opportunities for us to lease. And there's going to be significant competition amongst builders, so therefore the lease prices also. Yeah, do you think you're more ROI focused than others that are throwing around big numbers? I mean, I'm always focused on long-term return. Well, and we're at a time right now where there's people that have come out and effectively said, I don't actually care about ROI, I just care about winning, right? And it seems from your view, there was the mood of like, this might be the last invention ever. You always have someone else willing to give you the billion dollars when, or the 10 billion dollars, you can always be about, I'm out winning, and so there's a ton. But at some point, that party ends and everybody needs to sort of have a plan. But even that context in these platform shifts to be short-term oriented doesn't help at all, right? Because you've got to have, you know, I always say, long before it's conventional wisdom. I mean, if you look back, you ask how we put the billion, and the reality is we put the 10 billion. That's right. Or the 13 and a half was only committed before it became a thing, right? And remember, that was all done before Chad GPT became a thing. So yeah, how do you, I think there's a general consensus now that it feels very possible to predict like a year out, two years out, and then 10 years out is extremely fuzzy. What's your view on that, given that you look like going back to the original OpenAI investment and the original partnership? It seems like you've had at least really good like six-year kind of like foresight ability to sort of invest against like a six-year time horizon. But how are you thinking about managing over, you know, the next decade? Yeah, I mean, I think, you know, to me, you know, one of the things about tech is as a percentage of GDP, you have a rate around four or 5%. Yeah. And if you ask me five years from now, 10 years from now, is that percentage going to be higher or lower? I think the answer is pretty straightforward. It's going to be higher. It's just a question, is it going to be 10 or 15? So why is that? Because the rest of the pie, the rest of the GDP would have grown faster. So that's why I always go back to, at the end of the day, the only rate limiter here is the overall economic growth and the factors of sort of input to it. So tech as an input, I think AI and everything that it entails is going to be a core driver. And some of it will come from just this intelligence and its sort of continual march of capability. But it'll also come from, I would call it, great engineering and product making around it. Like when I look at GitHub Copilot today with Agent HQ and what have you, that's great product, because right now, I'm inundated with multiple models. And everything is slightly different, except I have one repo, and I want all of these agents to come work on all of my repo in different branches. So you need great product making to bring more coherence to the chaos, and that, I think, is going to make the big difference. I was talking to Eric Lyman at Ramp, who makes the show possible, of course. He had a question about how you, what advice you would give to someone running a deck of corn, 1,000 plus employees, in this age of spiky intelligence, where there is the possibility that tools are going to get better very rapidly, and maybe you don't want to scale up too fast and then have to do layoffs or retraining. But you run a huge organization. How do you think about managing human capital in what feels like an uncertain time? Does it feel more uncertain to you now than it did 10 years ago? For example, Eric's a great founder. I know him well, and they're doing some unbelievable work. Yeah, and so, in fact, whenever I've talked to him, in fact, I learn from him even how he's rapidly changing, the agents they have built. So to some degree, I think, as I said, Microsoft or it's Ramp, I think the key is learning the new production function. So when I look back at Microsoft, I feel like, hey, look, platform shifts with Navigator. I joined Microsoft when my existential competitor was Novell, right? And so, in 92, and here we are. And so, but the bottom line is we've, over the years, navigated many platform shifts. We've also navigated top business model shifts, right? When you suddenly have a 98, 99% gross margin server business and you have to move to the cloud and you don't even know, man, is there a margin here? And yet, you have to make the shift and figure it out. This one is, interestingly enough, both the tech shift, a business model shift, because this is the first time you have marginal cost software that's not like cards of the SaaS world, but true marginal cost. And three, the way you produce your artifact, your software, is changing. So the product development process is completely getting ripped and replaced. And that is a map, whether it's for Ramp. Yeah, even the competitive dynamic, too, because you have people that can say, hey, we can build this product in two months. Previously, it would have taken us 12 months. Why don't we enter that? And it's kind of like rewiring yourself, right? Unlearning is the hardest part. Learning is easy sometimes. If you have to unlearn and learn, it's much harder. So to me, that, I think, is what all of us have to do. It's funny, I met a bunch of student developers right here. It is the first cohort of developers who grew up with GitHub Copilot as standard issue. Wasn't it crazy? It's called a completely different environment. So they're saying, oh, there was a word before? We're in a completely different abstractual platform. On the topic of changing business models, shifting your business model, it seems like the console wars are over. Take me through the journey. You're a peacetime CEO now. We're a peacetime CEO. The war is over. But take me through the evolution of the business model shift on the gaming side of the business. It's one of the most interesting pieces of Microsoft. Yeah, I mean, I think you've got to remember, in fact, Flight Simulator, I think, was the first product Microsoft built, even before, I think, our dev tools first. Flight Simulator was second. That says so much about the culture. Yeah, it is. As soon as you gave the developers the ability to write code, they were like, let's make a game. It's amazing. And so, to me, remember, the biggest gaming business is the Windows business. To us, gaming on Windows, and of course, Steam has built a massive marketplace on top of it and done a very successful job of it. So, to us, the way we are thinking about gaming is, first of all, now, we're the largest publisher after the Activision. So, therefore, we want to be a fantastic publisher, similar approach to what we did with Office. We're going to be everywhere in every platform. So, we want to make sure, whether it's consoles, whether it's the PC, whether it's mobile, whether it's cloud gaming, or the TV. So, we just want to make sure the games are being enjoyed by gamers everywhere. Second, we also want to do innovative work in the system side on the console and on the PC. And it's kind of funny that people think about the console, PC, as two different things. We built the console because we wanted to build a better PC, which could then perform for gaming. And so, I kind of want to revisit some of that conventional wisdom. But at the end of the day, console has an experience that is unparalleled. It delivers performance that's unparalleled. That pushes, I think, the system forward. So, I'm really looking forward to the next console, the next PC gaming. But most importantly, the game business model has to be where we have to invent maybe some new interactive media as well. Because, after all, the gaming's competition is not other gaming. Gaming's competition is short-form video. And so, if we as an industry don't continue to innovate, both how we produce, what we produce, how we think about distribution, the economic model. Best way to innovate is to have good margins. Because that's the way you can fund. So, interesting saying gaming's competition is short-form video. It feels like the entire world's competition is short-form video. Yeah, I mean, we've heard this thing a while ago. It really just comes up again and again with public SaaS companies that are maybe a little bit more of a point solution. And they have to go through a business model transition. And that can be harder than a tech transition. And we hear about, oh, well, if you want to change your business model, maybe you want to be private. But it feels like, is there some sort of advantage of being a hyperscaler, a $4 trillion company that you can go and retool a piece of the business over here, change the business model, and have almost the privilege of not having shareholders come to you and beat you down about a slight shift in a business model in a subdivision? That you don't get that. I can't deny that diversity of business models, diversity of the portfolio that Microsoft has, has been helpful. I mean, it's kind of... But that said, I don't think you can take that and say somehow you can make it if you don't reinvent yourself. See, I think what happens in tech, unfortunately, is that when these shifts happen, whether you like it or not, you have to first be relevant after having... It doesn't matter what the business model is. I had, whatever, 90% margins. You are going to, at best, have 10%. But you have to jump all in because even that 90 is going to zero. And so, given the binary nature, you got to make it to the other side. But then the category economics matters. Because if you can't sustain long-term innovation, if there is no category economics... I mean, hyperscale is a great one. In fact, the best day in hyperscale business was the day Amazon announced their operating margin on AWX-IPR. Yeah, because that's when everybody knew hyperscale business is an unbelievable business. It's a commodity, but at scale, nothing is a commodity. And so, to me, that is kind of going to be the key here. Even SaaS applications... Quickly, unpack why that was so good for you again, just because the market recognized that you were in the same business and it was fantastic. Well, that was one. And more importantly, it was much more expansive, right? I mean, think about our server business. It's super profitable. Except, it was one-tenth the size, when I look at it, compared to Azure. So we sold a few servers, but man, we sell a lot of cloud VMs or containers. Who would have thought how expansive the cloud consumption model is going to be in terms of people being able to sort of... It's kind of the Jevons Paradox that sort of really played out in a massive way. You just went cloud-broadly. Yeah, and so I think on the business model... Well-timed Jevons Paradox post, by the way, back during the deep-seek moment. That was an important spot on with that process. I wish we could keep going. I think we have to wrap up the week for you, aside from this gong. And if we could give it a quick hit for 27%. That's a good hit. Let's try and sign it as big as possible. Oh, there we go. That is a fantastic signature. Great, thank you so much. Thank you for coming on. Thank you for having us. This is a really great time. I've always... Whenever these big news, these big tech news things happen, I always wish I could talk to the person who's making the news, and now I get to.