Microsoft Invests $1 Billion in OpenAI and Settles Bribery Charges


Jul. 25 2019, Updated 9:22 a.m. ET

Microsoft invests $1 billion in OpenAI

Microsoft’s investment of $1 billion in OpenAI is a development that has taken the tech space by storm. The investment underscores the company’s focus on artificial intelligence innovations. Likewise, the strategic partnerships underscore the two firms’ resolve to advance current AI systems to address complex tasks.

Under the terms of the agreement, the two are to work on new supercomputing technologies. In return, Microsoft will become the exclusive cloud provider for OpenAI. This strategic partnership could not have come at a better time. For starters, the artificial intelligence market is estimated to grow at a CAGR of 55.6% between 2018 and 2025, reports Allied Market Research. Likewise, the market size is poised to reach $169.4 billion by 2025.

Founded by Tesla (TSLA) co-founder Elon Musk and Sam Altman, OpenAI has grown to become a household name on AI innovations. For instance, its AI innovations have set new standards for robot dexterity while its gaming bots have beaten human champions.

Launched as a non-profit research lab in 2015, the firm has made impressive strides in rivaling Google (GOOGL) and Amazon (AMZN) on AI innovations. However, Elon Musk has already left the company to focus on his own artificial intelligence projects at Tesla.

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Microsoft investing to Enhance Azure

OpenAI did experience financial challenges earlier in the year. Consequently, the start-up opted to form a profit firm for pursuing strategic investments as it works to strengthen its balance sheet. Microsoft investing in the company validates the outrageous promises that the firm has made in recent months.

For Microsoft, the $1 billion investment is of great importance. For starters, it paves the way for it to enhance its Azure cloud-computing platform. By coming up with supercomputing technologies, the company should be able to fend off stiff competition from Amazon and Google on the cloud.

The Microsoft cloud platform has for the longest time remained in the shadows of Amazon Web Services. However, by adding new features to Azure, the software maker hopes to bridge the gap and take the fight to Amazon in the race for cloud customers.

By building artificial general intelligence to tackle complex tasks, Microsoft should be able to attract more clients. In return, the company should be able to accelerate Azure sales, which were up 64% in the recent quarter. Certainly, the $1 billion investment also underscores how Microsoft is trying to commercialize and monetize its AI investments.

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Microsoft criminal fine in Hungary

Microsoft’s investments of $1 billion on AI comes at a time of soaring regulatory woes in Europe. The company recently agreed to a $25.3 million fine, which included a criminal fine as well. The fine is for the settling of anti-bribery charges in Hungary.

The software giant is to pay $8.8 million as a criminal fine as part of a three-year non-prosecution agreement. Nevertheless, the criminal fine is in relation to illegal activities perpetrated by the company’s staff with regard to software sale. In addition, Microsoft has agreed to a $16.6 million settlement with the Security Exchange Commission over civil charges.

Authorities in Hungary allege that executives and employees pushed for steep discounts to complete software transactions. Instead of the discounts going to customers, they ended up as bribery payments to government officials. Of concern is that Microsoft ended up recording the discounts as business expenses.

US companies’ Europe woes

Microsoft joins a growing list of US companies that have found themselves at a crossroads with regulators in Europe. For example, the European Union antitrust chief is fresh from fining Qualcomm (QCOM) $271 million, approximately 1.3% of Qualcomm’s revenue in 2018. The fine is in relation to claims that the chipmaker resorted to predatory pricing to drive a competitor out of the market.

In March 2019, the European antitrust commission handed Google a fine of 1.49 billion euros. The fine was in relation to claims that the company engaged in abusive practices on online advertising. Likewise, Apple is also on the European Union radar over complaints raised by Spotify (SPOT). The music streaming service alleges that Apple is using its Apple Store to clamp down on competition on music streaming.


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