WEBVTT

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Well, Satya, thank you for joining me

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and thank you for hosting me at your

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beautiful offices here at Microsoft HQ.

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I'm super grateful to be here and I'm

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looking forward to talking to you about

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what the future of AI in the enterprise

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actually looks like. Our mission is to

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help companies own their intelligence by

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being able to train their own models and

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improve those the more they use them.

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So, when you recently wrote this article

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that got a lot of traction on X, I think

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it was titled "A Frontier Without
an Ecosystem Is Not Stable", it really

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resonated with a lot of the things
that we think about at at AC.

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And, you know, I wanted to maybe start
the conversation talking a little bit

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about uh you know, your core arguments

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in in that piece, which is

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you know, the stable equilibrium is

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really companies building on top of

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frontier capabilities rather than being

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attached to one or two frontier model
labs. I was curious if you could maybe

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talk a little bit about what that looks
like in practice, um how Microsoft is

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approaching this ecosystem play, and what
are the maybe the practical things

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that are being built on the
infrastructure side to make it happen.

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>> Yeah, no, first of all, yes, it's great
to have you here on the Microsoft campus

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and also it's great to be partnered
with you as you're building out

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um AC and uh we're building out

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essentially this frontier ecosystem.

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>> Um to me, the uh the motivation

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for both that article and what we're

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doing comes stems from

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understanding, I would say, two uh

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things or answering two questions,

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perhaps. One is what's the future of a

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firm in the ecosystem or in the economy

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uh in the age of AI,

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as well as what's the nature of the

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ecosystem and platforms

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uh with AI, right? So, let's start
with the first one which which is

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AI is a learning system, right? So, it's

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sort of a not a traditional digital

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technology or it's not a technology like

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all the other digital tools we built.

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And so, therefore, one has to sort of

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think about in a world where
a model can learn anything.

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>> Yeah.

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>> What are the limits
to that? Or in other

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words, how should the firm itself

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think of itself going forward? And so,

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my simple thing is there should be as many
models in the world as firms in the

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world, right? Because after all, what is

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a firm? A firm is a learning system that

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today is mostly about human capital with

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digital tools every day compounding the

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tacit knowledge that the firm
has and how it produces a

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good or a service that's
valuable in the economy.

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>> Totally. >> Right. So,
if that is the definition of

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a firm, my question is then in the age

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of AI, it should compound because of

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both its ability to create the token

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capital that then is being used in

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conjunction with the human capital
and then the compounding loop between the

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two, right? So, that's
sort of one part of it.

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In order for that to be true,

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then you do need to have a platform that

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is really enabling
every firm in the economy

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to be able to create its own token
capital. It can't be, "Hey, look, I have

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two frontier models or three frontier
models or whatever, some finite set that

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have learned everything that is

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differentiated today in the economy."

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Because then it collapses, right?
So, there is no stability

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to even the economy and definitely
the political economy won't tolerate it

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because you kind of need a world
that is, you know, there may be very

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successful companies. This is not about

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sort of any one company's success.

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It is about an economy being stable

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because there is a lot of economic

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growth that is more broad-spread. And so

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that's sort of the the two part
and that's why I wrote that.

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And you know, and then we can unpack that.
I mean, in terms of each of the layers.

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>> Totally. Yeah. And and I guess like

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maybe drilling in on that point about

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the stability of the economy, what do

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you think just breaks down when you have
all the value accruing to maybe a small

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set of model companies? >> Yeah,
I mean, if you think about it like

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definition of these tech platforms
at least that I subscribe to is more value

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has to be created about the platform
for the platform to be stable. Because

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>> Yeah, it's like the definition of >>
Yeah, it's otherwise it's kind of like,

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you know, if you you need
customers in order to be successful.

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And so that means customers have to be
successful. And that is a little bit of

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the the simple logic on it. >> Yeah.

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>> But more than that, right? I kind
of look at this and say today, first of

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all, I think we've got some very cool

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attributes to these models and we now

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know that what fuels that is of course

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compute, some great talent,
but also a lot of

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data. >> Yes. >> And so I
sort of look at it and say,

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hey, we have now created a lot of value
in these models using let's call it

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public data and great
talent and lots of compute.

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>> Yeah. >> But where
is the vast amount of data

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still? It's all in the enterprises or in

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the companies. And so where
the unlock at least if you

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sort of it's not it's it's not a zero-sum,
right? It's about what is the

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positive sum way for, let's say, to

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achieve what I think has to be the goal

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here collectively. Can the GDP
inflect to 10%, 15% or what have you?

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>> Yeah. >> And I think
that will come when every

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firm is able to take even a frontier
model or an open weight model or

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whatever

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and then hill climb using their R and E,
right? Which is the company itself.

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>> Yeah. >> And in that
process even build maybe

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even their own model or two which is

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much more fine-tuned to the their needs
and doesn't have to spend all the tokens

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>> Totally. >> on a frontier
model, right? So that I

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think is where the direction of travel is.

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>> That makes makes total sense and it's
a it's a perfect lead into what I was

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going to ask next which is how do
you make this decision about when

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to own versus rent? Because I think,
you know, you've said this before

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people will use other people's AI, they
will build their own AI, but when do you

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decide to do what? And from our
experience at AC, we've like seen kind

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of like four, you know, four sort
of different tailwinds that are kind of

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driving this all kind of recent actually.
You know, one is just the

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token apocalypse, things
are getting really expensive.

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Two is, you know, with maybe the most
recent Claude Fable release and the

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stipulations around it,
data protections, government stepping in,

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maybe the models on the frontier APIs
won't always be there. The third kind of

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being like labs are moving more into
the application layer and people are like,

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oh, I want to differentiate on multiple
levels than just depend on frontier

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models. And the fourth
being open source models are

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starting to get really, really good.

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>> Yeah. >> I'm curious
and this data point was a

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really, really good point. What are the

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are there any other major reasons
why you think companies might

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choose to own their intelligence?

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>> Yeah, I mean, I I think you you you hit
on the most of the criteria, but the way

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I I would think about is maybe a firm

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should say, okay, here is, I don't know,
an agentic system I want to build for my

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supply chain. >> Yeah. >> Right?
And optimizing the supply chain

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planning, let's call it.
After all, supply chains for an

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industrial company or for anyone is,
you know, or a data center company like us

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is pretty critical stuff, right? Which

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is it's it's also idiosyncratic based on

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what is unique about us and how we
operate and what have you. So, you I

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would say that one of the things that
is least talked about, although it's very

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critical for any agentic or AI system,

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is the outcome or the eval that matters

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for any such business process, right? Uh

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and so, I would start there, which is

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what's the outcome?
Uh and my ability to grade that outcome.

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>> [snorts] >> Um and start with that and
then say, "Okay, I welcome all models."

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>> Yeah. >> Then,
the important thing is the the the

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all part, which is I don't want
to be locked into anyone model.

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>> Totally, yeah. >> Right?
I'm happy to have all the

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frontier models. I want to use them
to see where they are on the eval.

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>> Yeah. >> Then, I want
to be able to use my own

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context, my own data, in fact, my own

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traces to maybe even take a much more

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open weight cost-efficient model
or a fine-tuned model which is not using

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general intelligence, but is using
the intelligence I need in order to

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basically hit the same eval
that a frontier model had.

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>> Yeah.
>> That is the empirical way I think

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companies are going to go about getting

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value because what that achieves is one,

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you're grounded on what the result is.

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Second is you are also ensuring that
you're not locked in to any one model.

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>> Yeah. >> And that means
you're in control of your

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token economics long term. That is how I

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think companies can decide, which is,
you know, really be outcome-oriented

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>> Yeah. >> uh and continuously
optimizing. There's

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no such thing as, "Hey, this model and

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this model family is the only thing that

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I am locked into." If anything, you're

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locked into one thing, which is the

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monotonic improvement of your outputs.

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>> Yeah, I think that's that's really
really well said and and I actually

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hadn't occurred to me before is by

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simply having the benchmark, you get all

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of this control cuz you can see
how things relate to one another.

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Um I think you know, in the article you

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were talking about this idea of like
a learning loop outside of your model. And

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I think this kind of touches on that is
like once you have these private emails,

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which you know, they're very unique
to the company, you can start to make your

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systems better. I'm curious
out of the companies that

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Microsoft works with, how what are the

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sort of initial foundations of learning

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loops that you're seeing people start to

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build around their AI systems?

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>> Yeah, in fact,
one of the biggest things

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that we are trying to get done is like

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after all we built

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uh you know, Office 365, Microsoft 365

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as this multi-tenant SaaS service in

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which some of the most important data

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{slash} context of a given enterprise is

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present, right? Which is if you think
about it, all their communications

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uh data and information, their projects,

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their timelines, their calendars,
their documents, all of that

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>> Yeah.
>> is the unstructured database uh where

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all that tacit knowledge. In fact,
it's sort of not only that the the

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unstructured data is there, but it's
the pointers to all the other of the

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business process, right? Because humans
are communicating, creating documents,

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all this unstructured data is in the

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context of even structured processes,

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right? And so, to me, taking that

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and really in fact, we describe it
as Work IQ, we want that to be the context

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layer along with any model,
right? So, when we

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even built Copilot, that's kind of how

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we built it, right? Which is Copilot

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takes the Work IQ context, mixes up with

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any model, and then helps you with the
outcomes you want and the intents you

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want. >> Yeah. >> And we are
even exposing that, like so

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for example, you know, one of the things
that we did even at Microsoft was to

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take the HR onboarding process.

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>> Yeah. >> The HR onboarding
process has a system

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of record somewhere, but a lot of it
also happens in email, in calendars, and

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and what have you. It's much So, if we

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can take that context, and then create

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an agentic system which streamlines the

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H, you know, onboarding process,

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and it's token efficient, right? Because

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the context is being used
for both input tokens, um

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being you know, being input properly,
and then you're not using frontier

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models to generate and regenerate output
tokens that don't need to be regenerated.

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>> Yeah. >> And that to me
is a great way to in some

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sense create a learning loop that
continuously gets better before we even

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have come to fine-tuning
a model or what have you.

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>> Yeah. >> Then on top of it, you can,
right? You can You can also have an all

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>> That's the layer they stack.

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>> Exactly, right?
And you can always like,

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you know, whether it's you know, I think
that that's sort of what I think people

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will go is have evals, have context,

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>> Yeah. >> then have
models all hill climb, and as

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the models are hill climbed and you say,
"Oh, but I'm I've got all this new

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trace data. >> Yeah. >> Let me
take all that, tune a a more a

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computer-efficient model >> Yeah.

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>> for this particular outcome, and then
keeps doing the cycle continuously.

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>> And and I I I think one of the points
you made there is is is actually, you

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know, kind of a centerpiece of the the

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whole original article is this idea of,

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you know, human capital and token capital.
And when I and that they're

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very intertwined and interlaced. And
and when I was looking at some of the you

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know reactions to your post, one of them

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that caught my eye was like this is like

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an incredibly positive some take on AI,

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which is actually not what the narrative

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is usually around around AI. It's that

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tokens are going to eat into what
humans do and you know, it's a little bit

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fatalistic that like AI is just going to
do everything. But your view is that you

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know, humans are actually essential to

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making you know, the token economy grow

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and these models actually do effective

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work. So Evals is is one way, but you
know, when you're thinking about these

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these learning loops that are being

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built, how are how are how is Microsoft

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thinking about designing learning loops
that are very human-centric so that they

00:14:10.960 --> 00:14:14.597
learn >> It's a great thing,
right? Because at some level,

00:14:14.680 --> 00:14:18.637
you know, I I go back a little bit
to Uh first of all, I think we should be

00:14:18.720 --> 00:14:23.997
clear-eyed about the change to the
knowledge economy and the knowledge work.

00:14:24.080 --> 00:14:28.077
>> Yeah. >> And so therefore,
even the displacement

00:14:28.160 --> 00:14:30.517
with something as disruptive as this.

00:14:30.600 --> 00:14:33.837
>> Yeah. >> But if I look
back, um let's say in the

00:14:33.920 --> 00:14:36.317
early '80s, long before you were born.

00:14:36.400 --> 00:14:40.397
>> [laughter] >> Yeah. >> Um if
somebody had come to me and said,

00:14:40.480 --> 00:14:44.597
"Hey, 3 billion people are going to wake
up and they're all going to be typing

00:14:44.680 --> 00:14:47.877
every day." And we would have said,
"What are we talking about? Like why

00:14:47.960 --> 00:14:50.437
would the world need 3 billion typists?"

00:14:50.520 --> 00:14:51.717
>> Yeah. >> But

00:14:51.800 --> 00:14:54.597
But we did invent a complete thing

00:14:54.680 --> 00:14:57.957
called knowledge work. And it is turns

00:14:58.040 --> 00:15:00.117
out that all of us in different forms,

00:15:00.200 --> 00:15:04.997
right? Whether you're an accountant
or a supply chain analyst or a coder,

00:15:05.080 --> 00:15:08.397
uh we're all doing knowledge work,
right? So we kind of figured out how to

00:15:08.480 --> 00:15:12.997
use these computers uh
to accelerate what was work that was

00:15:13.080 --> 00:15:15.237
being done in different ways. >> Yeah.

00:15:15.320 --> 00:15:17.637
>> I think we're at the We now need that

00:15:17.720 --> 00:15:20.117
same new reinvention of knowledge work.

00:15:20.200 --> 00:15:24.157
And I I mean, take even
coding. Right? I mean

00:15:24.240 --> 00:15:29.757
Let's you know coding for the longest
time even for you and for me it was code

00:15:29.840 --> 00:15:33.717
as input. >> Yeah. >> Suddenly
code has become output. Right?

00:15:33.800 --> 00:15:35.957
So like you know in some sense we know

00:15:36.040 --> 00:15:40.957
but but at the same time I do
think that you know what does a

00:15:41.040 --> 00:15:43.957
coder do today? I you know
one of the things that one of

00:15:44.040 --> 00:15:47.317
my colleagues you know thought me
and he's in fact written a skill is called

00:15:47.400 --> 00:15:49.357
cognitive coverage right? Which is the

00:15:49.440 --> 00:15:54.637
human is still on the loop.
Just like test coverage in the past.

00:15:54.720 --> 00:15:59.437
>> Yeah. >> Humans are needed to have
cognitive coverage over machine output.

00:15:59.520 --> 00:16:03.757
>> Mhm. >> So that you know
what the machine produced.

00:16:03.840 --> 00:16:06.557
You're able to interrogate it.
That's a job.

00:16:06.640 --> 00:16:11.277
>> Totally. >> That we will in fact value.
That you will then need skills to do.

00:16:11.360 --> 00:16:13.517
>> Yeah. >> That you
will go to school for.

00:16:13.600 --> 00:16:15.557
>> Yeah. >> And that will
have wage support.

00:16:15.640 --> 00:16:18.117
>> Yeah. >> It may be
different than what a software

00:16:18.200 --> 00:16:23.477
developer's wages in the past were.
It may be more or less the same who knows.

00:16:23.560 --> 00:16:25.797
>> Yeah. >> But there is a job to be done.

00:16:25.880 --> 00:16:29.837
>> Totally. >> And so one
of my things is hey let's now

00:16:29.920 --> 00:16:32.117
get into this thing about where are all

00:16:32.200 --> 00:16:37.597
the human capital interventions
to create more token capital.

00:16:37.680 --> 00:16:40.677
>> Yes. >> And I look
around the empirical evidence

00:16:40.760 --> 00:16:44.917
is there will be no chance of creating
any token capital without human capital.

00:16:45.000 --> 00:16:49.557
>> Yeah. >> And so we are talking
about as if this just came from nowhere.

00:16:49.640 --> 00:16:52.557
>> Yeah. >> Even if you
go to you know let's let's

00:16:52.640 --> 00:16:54.157
say we're all AGI paired we're going to

00:16:54.240 --> 00:16:58.477
hit RSI. Even with RSI the question is

00:16:58.560 --> 00:17:02.437
you know unless we're talking about us
as humans losing control. I look at it

00:17:02.520 --> 00:17:04.677
and say the only thing valuable in the

00:17:04.760 --> 00:17:07.277
age of RSI is the human capital that's

00:17:07.360 --> 00:17:10.237
controlling the AI. So I feel like

00:17:10.320 --> 00:17:13.437
that's the imagination we should unlock

00:17:13.520 --> 00:17:18.517
and starting atomically at the firm
level and saying how do I really design

00:17:18.600 --> 00:17:20.437
my organization now where the human

00:17:20.520 --> 00:17:24.477
capital, its ambition, its agency

00:17:24.560 --> 00:17:28.957
is in fact driving
the accumulation of token capital.

00:17:29.040 --> 00:17:31.837
>> Yeah. >> And if we
framed it that way, it's

00:17:31.920 --> 00:17:35.197
positive sum for the individual, for the

00:17:35.280 --> 00:17:38.797
firm, for the economy, and by the way,

00:17:38.880 --> 00:17:42.517
we'll be fine with tokens
doing a lot of the work.

00:17:42.600 --> 00:17:45.477
>> Yeah. And you've said
this before, which is

00:17:45.560 --> 00:17:47.477
a lot of it is about finding the right

00:17:47.560 --> 00:17:49.837
hill to climb. And that'll always be a

00:17:49.920 --> 00:17:52.917
very human thing. And when you feedback

00:17:53.000 --> 00:17:57.317
to these AI systems and you define what
good and bad looks like, out pops that

00:17:57.400 --> 00:18:01.157
private email that you're actually
trying to go and optimize your token

00:18:01.240 --> 00:18:03.757
spend towards. But one thing I was

00:18:03.840 --> 00:18:05.877
actually curious about was, you know,

00:18:05.960 --> 00:18:09.397
there's a big supply and demand mismatch

00:18:09.480 --> 00:18:13.197
right now between how people
are using these AI systems.

00:18:13.280 --> 00:18:16.277
And one thing I I was just kind
of thinking about this last night, so I

00:18:16.360 --> 00:18:20.277
wanted to ask you is, is in a world where,

00:18:20.360 --> 00:18:22.477
you know, demand is far outpacing

00:18:22.560 --> 00:18:24.797
supply, but there are huge companies

00:18:24.880 --> 00:18:29.917
like these model labs buying up a bunch
of capacity for compute, and compute

00:18:30.000 --> 00:18:31.677
equals intelligence,

00:18:31.760 --> 00:18:34.157
do you worry about a world where there

00:18:34.240 --> 00:18:36.997
may be any like unequal distribution of

00:18:37.080 --> 00:18:39.797
intelligence across these firms? And

00:18:39.880 --> 00:18:42.397
what are the ways that people can start

00:18:42.480 --> 00:18:47.597
investing in their future today? Is it
like buying capacity to actually go and

00:18:47.680 --> 00:18:50.637
run these models? Is it working
with a hyperscaler like you guys?

00:18:50.720 --> 00:18:51.597
>> Yeah, it's a great question. I mean I

00:18:51.680 --> 00:18:55.317
mean we do have definitely because of

00:18:55.400 --> 00:18:57.877
where the demand has come from and and

00:18:57.960 --> 00:19:01.117
then the supply does require time

00:19:01.200 --> 00:19:05.597
to get built. So we're definitely in the
throws of a what is a massively supply

00:19:05.680 --> 00:19:10.197
constrained market.
But I would say like if I were Uh,

00:19:10.280 --> 00:19:12.157
whether it's an AI startup or a large,

00:19:12.240 --> 00:19:14.957
sort of bank.

00:19:15.040 --> 00:19:20.557
I would start with, "Hey, how do
I create my own hill climbing loop

00:19:20.640 --> 00:19:23.877
system?" And that learning loop

00:19:23.960 --> 00:19:26.997
in which every day I'm sort of really

00:19:27.080 --> 00:19:29.437
creating that private eval benchmark,

00:19:29.520 --> 00:19:32.317
right? That is our and my IP.

00:19:32.400 --> 00:19:37.637
What's that context layer that is
optimized in fact to use tokens most

00:19:37.720 --> 00:19:42.037
efficiently? How do I then
use even uh, the models

00:19:42.120 --> 00:19:45.637
that exist today uh, to help me

00:19:45.720 --> 00:19:50.797
uh, climb up that benchmark? Uh,
and then maybe take even there and say

00:19:50.880 --> 00:19:54.037
what's a way for me to fine-tune a model,
right? So, that's the place to

00:19:54.120 --> 00:19:58.237
start. And and that way then you're
participating. And I think that if we

00:19:58.320 --> 00:20:00.717
did that I think that some of the supply

00:20:00.800 --> 00:20:03.077
challenges will over time get solved. I

00:20:03.160 --> 00:20:07.237
think that this concentration of compute

00:20:07.320 --> 00:20:10.317
in, you know, is sort of by definition

00:20:10.400 --> 00:20:14.477
of physical constraint that over time

00:20:14.560 --> 00:20:17.917
will have to solve except for the
network effects. So, that's one of the

00:20:18.000 --> 00:20:20.557
reasons why I'm advocating for this

00:20:20.640 --> 00:20:23.357
ecosystem piece is, "Hey, the everyone

00:20:23.440 --> 00:20:28.197
who's a participant in the economy
has to recognize the network effects of

00:20:28.280 --> 00:20:30.037
intelligence are different than even the

00:20:30.120 --> 00:20:32.757
classic network effects of digital

00:20:32.840 --> 00:20:35.477
technologies." This is not just about

00:20:35.560 --> 00:20:37.397
some tech people competing with each

00:20:37.480 --> 00:20:41.317
other. It's much more invasive. Yeah.

00:20:41.400 --> 00:20:42.757
>> Intelligence is a
different ballgame, right?

00:20:42.840 --> 00:20:44.317
>> It's a very different ballgame. And so,

00:20:44.400 --> 00:20:47.757
as long as you understands it, then I

00:20:47.840 --> 00:20:50.437
think every firm will figure out how to

00:20:50.520 --> 00:20:52.997
participate in it versus just be a

00:20:53.080 --> 00:20:55.757
bystander renting a model only to be

00:20:55.840 --> 00:20:58.477
locked in and never have the even the

00:20:58.560 --> 00:21:02.837
freedom even when compute is abundant
to do anything, right? Like that's why I

00:21:02.920 --> 00:21:06.637
say like one of the things I wrote
in their article was you can always buy a

00:21:06.720 --> 00:21:10.917
tool. You can even outsource a task or
even a job, but you can't outsource your

00:21:11.000 --> 00:21:13.277
learning. >> Yes. >> Right?
If you do outsource your

00:21:13.360 --> 00:21:15.957
learning, then why exist?

00:21:16.040 --> 00:21:18.517
>> Yeah, and and I I
I like the comparisons

00:21:18.600 --> 00:21:20.637
you were making between like

00:21:20.720 --> 00:21:23.397
technologies in the past and uh you

00:21:23.480 --> 00:21:26.277
know, what this new AI paradigm is. Uh

00:21:26.360 --> 00:21:30.437
you know, you you you stepped into
the role of of CEO, but you've always kind

00:21:30.520 --> 00:21:34.797
of operated with this like founder energy.
People call you a refounder,

00:21:34.880 --> 00:21:38.477
right? I'm curious like when it comes
and and and the hallmark of an amazing

00:21:38.560 --> 00:21:42.677
leader is sort of leading companies
through these paradigm shifts, much like

00:21:42.760 --> 00:21:47.117
you did with the move to cloud. Uh when
you're thinking about this new paradigm

00:21:47.200 --> 00:21:51.517
shift to AI, how are you
thinking about practically,

00:21:51.600 --> 00:21:53.677
maybe even within Microsoft itself,

00:21:53.760 --> 00:21:58.717
changing the way the company operates
in order to really catch the wave and make

00:21:58.800 --> 00:22:02.477
sure that um you guys are building
the right things and and sort of

00:22:02.560 --> 00:22:05.917
>> Yeah, I think see the magic
of founders are they create

00:22:06.000 --> 00:22:09.557
something from nothing, right? I mean,
that's you know, what by definition it's

00:22:09.640 --> 00:22:13.397
sort of full risk on and if you're
successful, that means you've created

00:22:13.480 --> 00:22:15.477
something that didn't exist at all and

00:22:15.560 --> 00:22:20.557
was conceptualized and then executed
on and that takes that energy and and that

00:22:20.640 --> 00:22:22.317
completeness of thought and the

00:22:22.400 --> 00:22:24.877
relentless pursuit of it. Uh and for

00:22:24.960 --> 00:22:27.677
companies that have been successful, uh

00:22:27.760 --> 00:22:30.917
right? You sometimes forget what made

00:22:31.000 --> 00:22:33.277
you successful initially and that's why

00:22:33.360 --> 00:22:36.157
I think uh this refounding as a concept

00:22:36.240 --> 00:22:38.437
is empowering, right? As I say to for

00:22:38.520 --> 00:22:43.717
mere mortal CEOs like me who come
in later after having, you know, you know,

00:22:43.800 --> 00:22:47.037
being in a company that was super
successful, but not being a founder.

00:22:47.120 --> 00:22:49.357
>> Yeah. >> But the point
is the opportunity for

00:22:49.440 --> 00:22:53.717
anybody, whether you're a CEO or part
of the management team or even an IC in

00:22:53.800 --> 00:22:56.277
this company, is to be part of the

00:22:56.360 --> 00:23:00.757
learning culture of this place and be
part of that refounding team, right?

00:23:00.840 --> 00:23:03.117
That's I think a great empowering thing.

00:23:03.200 --> 00:23:06.317
>> Sure. >> Um and the
reason why you have to do

00:23:06.400 --> 00:23:09.357
that is, you know, you remember like our

00:23:09.440 --> 00:23:13.877
industry in particular always has
been pretty harsh around technology

00:23:13.960 --> 00:23:17.957
transitions, right? Either you make it
or you don't, right? You So, you can't

00:23:18.040 --> 00:23:20.157
say, "Hey, I'm building

00:23:20.240 --> 00:23:23.117
um mainframes in the age of mini or

00:23:23.200 --> 00:23:28.277
minis in the age of the PC." Uh it just
moves. And so, when it moves, if you're

00:23:28.360 --> 00:23:30.597
not on >> It won't wait.
>> Yeah, it's sort of sort of one-way

00:23:30.680 --> 00:23:36.237
doors, right? And so, you have to sort of
move with the technology secular change.

00:23:36.320 --> 00:23:40.757
The At some level, I would
say that is the easy part.

00:23:40.840 --> 00:23:43.957
>> Yeah. >> This next hard part
is the business model shift.

00:23:44.040 --> 00:23:46.557
>> Totally. >> Right?
Because you fall in love with how

00:23:46.640 --> 00:23:51.237
you made your margin, you succeeded
in the mainframe or in the mini or in the

00:23:51.320 --> 00:23:54.557
PC, and suddenly something new
shows up and you say, "Wow, >> Yeah.

00:23:54.640 --> 00:23:58.117
>> this thing doesn't come with the same
margin profile, and I'm so yet I'm

00:23:58.200 --> 00:24:00.997
supposed to love it." And so, that's
kind of it's, you know, and the and the

00:24:01.080 --> 00:24:05.157
street and others will not give you
permission, right? Everybody in this you

00:24:05.240 --> 00:24:09.237
know, in the the street will talk
the long game, but then everyone is short.

00:24:09.320 --> 00:24:11.197
>> Yeah. >> Uh but that's
kind of what you have to

00:24:11.280 --> 00:24:14.837
earn their permission, figure
out a path. It's always hard.

00:24:14.920 --> 00:24:18.197
>> Yeah. >> Uh but so, that you
have to conquer the business model.

00:24:18.280 --> 00:24:20.957
And sometimes the change will even come

00:24:21.040 --> 00:24:26.237
like this AI change, where even
the way you produce the magic,

00:24:26.320 --> 00:24:28.717
>> Yeah. >> which is human
capital using digital

00:24:28.800 --> 00:24:32.477
tools to create more software. Like
that's you know, for the first 50 years

00:24:32.560 --> 00:24:35.877
of Microsoft, that's kind of what it is,
right? We had to deal with a lot of

00:24:35.960 --> 00:24:40.317
changes in technology, right? From the
Altair to the cloud, there was a lot of

00:24:40.400 --> 00:24:44.557
change. >> Yeah.
>> But at some level, the production

00:24:44.640 --> 00:24:46.837
function was just create more software.

00:24:46.920 --> 00:24:49.637
>> Yeah. >> But suddenly
now software has gone from

00:24:49.720 --> 00:24:52.837
just being pure input to just output.

00:24:52.920 --> 00:24:56.157
>> Yeah. >> And so,
that production function change

00:24:56.240 --> 00:25:00.597
is also something now we not only have
to deal with what is going to be changes

00:25:00.680 --> 00:25:04.477
in technology. Uh, the good
news here is we were early to

00:25:04.560 --> 00:25:07.397
it. So, we are I think we
are good at you know at it.

00:25:07.480 --> 00:25:09.597
>> Yeah. >> The business
model is actually pretty

00:25:09.680 --> 00:25:14.197
conducive, right? After all the cloud
is a consumptive business model and AI has

00:25:14.280 --> 00:25:17.197
got marginal cost. So, it's all
a consumptive business model.

00:25:17.280 --> 00:25:19.277
>> Yeah. >> So, the bigger
change for us this time

00:25:19.360 --> 00:25:23.077
around is going to be that last change,
which is hey how do we ourselves at

00:25:23.160 --> 00:25:26.117
Microsoft and you know completely change

00:25:26.200 --> 00:25:30.837
the way we work across every function,
not just software, right? Because you

00:25:30.920 --> 00:25:34.677
can't change one function because you
run into the Amdahl's law, right? Which

00:25:34.760 --> 00:25:37.037
is you got to have the entire

00:25:37.120 --> 00:25:41.877
organization not have impedance mismatch

00:25:41.960 --> 00:25:46.237
and work like an AI native company
because an AI native company is born

00:25:46.320 --> 00:25:50.077
today, they will think about their human
capital, token capital in the most

00:25:50.160 --> 00:25:52.757
effective compounding loop. And we have

00:25:52.840 --> 00:25:56.357
to now go from our old to the new new

00:25:56.440 --> 00:26:00.717
fast. >> That makes total sense.
And and I think

00:26:00.800 --> 00:26:04.517
you know Microsoft enterprises run
on Microsoft. You guys have built this

00:26:04.600 --> 00:26:07.597
whole productivity stack on top of it.

00:26:07.680 --> 00:26:10.237
And I I I know you've
said in the past that

00:26:10.320 --> 00:26:14.917
there's a lot of that that is still very
applicable in the in the age of AI and

00:26:15.000 --> 00:26:17.037
people have asked you like you know,

00:26:17.120 --> 00:26:19.437
what is the durability of software and

00:26:19.520 --> 00:26:24.477
whatnot. Um, I'm curious if if if you
could talk to like how does software in

00:26:24.560 --> 00:26:29.077
today's world and people who
build software, durable software

00:26:29.160 --> 00:26:32.997
you know, we've seen the markets say oh
software is dead, but really like people

00:26:33.080 --> 00:26:35.517
are still using these things. Um,

00:26:35.600 --> 00:26:40.117
what do you think happens to software
companies and the products that they

00:26:40.200 --> 00:26:44.917
produce? Will they flourish in the age
of AI or eventually people will just

00:26:45.000 --> 00:26:47.957
build everything in house?
>> No, I think that

00:26:48.040 --> 00:26:53.037
the good way to think about it is perhaps
if you're starting something new.

00:26:53.120 --> 00:26:56.277
>> Yeah. >> It's fascinating,
right? Which is

00:26:56.360 --> 00:27:00.157
if you believe the firm is going
to have human capital >> Yeah.

00:27:00.240 --> 00:27:04.557
>> and token capital. >> Mhm.
>> You then say, "What's the interface

00:27:04.640 --> 00:27:07.317
between the human capital
and the token capital?"

00:27:07.400 --> 00:27:11.237
>> Yeah. >> And then say,
"Wow, if the next big hit

00:27:11.320 --> 00:27:16.197
thing that we produce which
is a fully embodied agent

00:27:16.280 --> 00:27:18.997
>> Yeah. >> that needs
to interface, has to show up

00:27:19.080 --> 00:27:22.797
in Teams or some other communications
medium." That that means there is some

00:27:22.880 --> 00:27:24.797
need for some software. >> Totally.

00:27:24.880 --> 00:27:28.517
>> Right? So, that's kind of one. Like oh,
even Excel is fascinating, right? Which

00:27:28.600 --> 00:27:29.717
is

00:27:29.800 --> 00:27:35.597
Let's say in the model created us most
sophisticated supply chain or financial

00:27:35.680 --> 00:27:40.317
model. >> Yeah. >> But I
as a human now need to sort of

00:27:40.400 --> 00:27:42.517
make sense of it. Uh

00:27:42.600 --> 00:27:46.277
then the best way for that AI to

00:27:46.360 --> 00:27:49.277
generate the artifact is to produce a

00:27:49.360 --> 00:27:53.637
great Excel model, which by the way
is just not a grid, right? It's got all

00:27:53.720 --> 00:27:55.437
sorts of positional >> behind it.

00:27:55.520 --> 00:27:57.797
>> got all the positional
information. I as

00:27:57.880 --> 00:28:02.477
a human know how to parse the rows and
columns. I can do summations and so on.

00:28:02.560 --> 00:28:07.357
And give me an AI agent even right next to
it as a side car that can drive the model.

00:28:07.440 --> 00:28:07.797
>> Yeah.

00:28:07.880 --> 00:28:10.237
>> Right? So, I feel like software still

00:28:10.320 --> 00:28:15.117
has a lot of value. And as long as the

00:28:15.200 --> 00:28:18.357
but the pricing adjusts, right?
Which is at some level if you are a very

00:28:18.440 --> 00:28:22.397
high-priced piece of software which
was delivering low value >> Yeah.

00:28:22.480 --> 00:28:24.877
>> people are going to ask the question,
"Should I just generate it?"

00:28:24.960 --> 00:28:27.277
>> Yeah. >> Uh generating
it is one part. After that

00:28:27.360 --> 00:28:31.397
you got to keep up with it. You have
to make sure that all the cyber stuff is

00:28:31.480 --> 00:28:33.477
being taken care of not one time but

00:28:33.560 --> 00:28:36.917
continuously. But that said, I think the

00:28:37.000 --> 00:28:42.477
physics have changed and so therefore no
one can just sit on what they produced.

00:28:42.560 --> 00:28:45.397
>> Yeah. >> Uh and customers
will question what's

00:28:45.480 --> 00:28:47.797
the value of all of this. Uh but at the

00:28:47.880 --> 00:28:52.517
end of the day, as long as there
is humans and tokens compounding together,

00:28:52.600 --> 00:28:56.477
>> Yeah. >> the need for software is going
to actually explode. I mean, another

00:28:56.560 --> 00:28:59.197
example, like we're seeing it.
We're seeing it in GitHub.

00:28:59.280 --> 00:29:01.357
>> Yeah. >> Uh painfully so.

00:29:01.440 --> 00:29:06.117
Uh and also in M365 where agents as they

00:29:06.200 --> 00:29:11.117
explode, what was systems that
were built for human workflow,

00:29:11.200 --> 00:29:15.317
>> Exactly. >> now have to completely
like I mean like I mean think >> Yeah.

00:29:15.400 --> 00:29:20.277
>> the Git protocol >> Yeah.
>> itself was built for a human workflow.

00:29:20.360 --> 00:29:24.037
And so now we have to think about wow,
what does, you know, a work tree mean?

00:29:24.120 --> 00:29:26.797
What does agentic workflow mean? Uh with

00:29:26.880 --> 00:29:30.477
code. Same thing with Work IQ. Work IQ

00:29:30.560 --> 00:29:34.397
cannot be on the same path
as my dial tone when I'm in Outlook.

00:29:34.480 --> 00:29:36.717
>> Yeah. >> So we literally
are creating a complete

00:29:36.800 --> 00:29:39.077
different middle tier such that the

00:29:39.160 --> 00:29:42.317
reasoning loops of AI that are also

00:29:42.400 --> 00:29:47.477
interrogating the same data are not
in fact sort of crowding out what is the

00:29:47.560 --> 00:29:51.477
human interaction uh with
the data and what have you.

00:29:51.560 --> 00:29:53.917
>> I love it.
And And I just maybe the last

00:29:54.000 --> 00:29:58.917
question cuz I know I know you have
to run is as Microsoft thinks about, you

00:29:59.000 --> 00:30:00.477
know, the next the next couple of years

00:30:00.560 --> 00:30:02.997
of this AI shift, there's sort of this

00:30:03.080 --> 00:30:06.037
question of what is first-party product?

00:30:06.120 --> 00:30:10.317
What is platform? And then what,
you know, as the dynamics and physics are

00:30:10.400 --> 00:30:15.237
changing, we should expect companies
to just go and build entirely themselves.

00:30:15.320 --> 00:30:19.597
Um do you have some rough sort
of guidelines for the types of products

00:30:19.680 --> 00:30:22.557
that Microsoft's going to build, the types
of infrastructure they're going to

00:30:22.640 --> 00:30:26.437
support, and what, hey, you know,
companies, you should just go and and

00:30:26.520 --> 00:30:29.597
tackle this head on and it's good
for you in the the long run to do that?

00:30:29.680 --> 00:30:33.077
>> Yeah, I mean, I think, you know, the
way we've always thought about it and I at

00:30:33.160 --> 00:30:34.997
least the the way I've conceptualized

00:30:35.080 --> 00:30:37.117
these ecosystems are is like, hey, you

00:30:37.200 --> 00:30:40.557
build various layers of the stack.

00:30:40.640 --> 00:30:45.037
But each layer of the stack, one our case,
should compose, but it should be

00:30:45.120 --> 00:30:46.877
extensible, right? So, what I'm like

00:30:46.960 --> 00:30:49.877
even take something like

00:30:49.960 --> 00:30:52.637
Co-work, right? Co-work for us is one of

00:30:52.720 --> 00:30:57.197
the modalities. We have chat, we have
Co-work, we have autopilot or scout, and

00:30:57.280 --> 00:30:59.677
so on, which are all
the modalities of Co-pilot.

00:30:59.760 --> 00:31:03.237
>> Yeah. >> But the point
is all of those also got

00:31:03.320 --> 00:31:05.237
extensibility, right? So, you can build

00:31:05.320 --> 00:31:08.317
an agent that is discoverable inside a

00:31:08.400 --> 00:31:12.117
chat or inside Co-work can use it as a

00:31:12.200 --> 00:31:15.317
tool and so on. So, that's kind of So,

00:31:15.400 --> 00:31:17.957
in other words, we want to build every

00:31:18.040 --> 00:31:22.477
layer of the stack as something
that is ecosystem extensible.

00:31:22.560 --> 00:31:26.637
>> Yes. >> model diverse >> Yeah.

00:31:26.720 --> 00:31:30.597
>> Right? Those are some of the principles
we will have, which is at the end of the

00:31:30.680 --> 00:31:35.317
day we want to make sure we are
making each layer competitive

00:31:35.400 --> 00:31:40.037
and at the same time making sure that
the customers or third-party developers

00:31:40.120 --> 00:31:42.117
have choice. >> Yeah.

00:31:42.200 --> 00:31:46.037
>> And not because,
you know, competitively

00:31:46.120 --> 00:31:49.117
that is always the best answer for us.

00:31:49.200 --> 00:31:52.437
But in the long run, what we've learned

00:31:52.520 --> 00:31:58.557
is by interoperating by having
this positive sum construct

00:31:58.640 --> 00:32:03.277
>> Yeah. >> we've been able to grow
the market and grow our share.

00:32:03.360 --> 00:32:06.037
>> Yeah. People want choice
and they want People want choice and

00:32:06.120 --> 00:32:08.597
>> sort of in the long
run it's much better

00:32:08.680 --> 00:32:11.717
and more stable going all the way
back to the beginning >> Totally.

00:32:11.800 --> 00:32:16.197
>> which is if I said, "Hey, look,
let's not Let's have a frontier >> Yeah.

00:32:16.280 --> 00:32:18.717
>> where there is a real ecosystem

00:32:18.800 --> 00:32:21.277
participation. Because if you do that,

00:32:21.360 --> 00:32:26.717
that positive sum is got lot
more stability for the economy.

00:32:26.800 --> 00:32:28.157
>> Well, thank you so much for joining me.

00:32:28.240 --> 00:32:31.717
It's I really appreciate your time
and yeah, looking forward to working more

00:32:31.800 --> 00:32:33.837
together. >> Likewise.
Thank you so much, Yash.

00:32:33.920 --> 00:32:36.360
Thanks.

00:32:37.160 --> 00:32:39.180
>> [music]