Microsoft CEO Satya Nadella explains how he views his partnership — and competition — with OpenAI

• Microsoft CEO Satya Nadella spoke to Stratechery about its $13 billion partnership with OpenAI.
• "There's going to be competition," he told the tech and media newsletter.
• Microsoft is developing its own AI model, led by Mustafa Suleyman, separate from OpenAI's.

Knowing when to compete and when to collaborate is one of the keys to winning in business.

Microsoft CEO Satya Nadella believes both forces are at play in its more than $13 billion partnership with OpenAI.

"Long-term stability comes from both sides winning on a continuous basis and that's how at least I approach it," Nadella told the media and tech newsletter Stratechery.

He said the two companies have to collaborate to achieve those wins. Nadella said that in OpenAI's view, Microsoft provides the infrastructure, while OpenAI builds the AI models. But that doesn't mean they won't compete with one another.

"They build apps, we build apps, third parties build apps, and so it goes," he said. "There's going to be competition, and there'll be some competition which is fully vertically integrated."

Microsoft recently announced, for example, that it's also building an in-house AI model called MAI-1 from a dataset that includes text from ChatGPT and outside sources like public information on the internet. The model is separate from OpenAI's GPT-4 and is being overseen by DeepMind founder Mustafa Suleyman, who jumped to Microsoft in March.

Nadella, who once said about OpenAI that Microsoft was "below them, above them, around them," told Stratechery that "you have to be open-minded that at the end of the day, sometimes partnerships are the only way to get ahead."

And that philosophy doesn't just apply to Microsoft and OpenAI — it extends to all units of the company.

"The way I think about Microsoft is yes, ultimately we are not like a conglomerate, we have to have a real thesis that there is a cohesiveness to architecture," Nadella said. "We are at our best when it's just not integration, it has to be integration plus competitiveness of every layer of the stack."