Microsoft's CEO on what happens when the Al subsidies stop

New Copilot for enterprises

00:00Microsoft has a new version of its co-pilot AI assistant that merges the consumer and workplace versions into one product that's just aimed at corporate customers. It's an interesting week as we talked about uh with MetaMuse coming out for this also news to drop. Joining us for more Dedra Bosa she's bringing a new show to Yahoo Finance and just spoke to Microsoft CEO Satcha Nadella and she's joining us now. Hey D, good morning. >> Hey guys. Well, first of all, I'm thrilled to be here. my first appearance on Yahoo Finance, but of course longtime watcher and listeners. So, I was up in Redwood, Seattle earlier this week talking to Sati Nadella and the Microsoft team and I got a preview of this new co-pilot and Microsoft had to

00:41do something special here, right? Because even though Sati Nadella says that the adoption numbers, it's about 30 million customers so far, he's happy with that. They really want to be the operating layer for enterprise AI. So, this new co-pilot has a few different modes. And the bet is essentially that companies shouldn't have to watch the model race, right? It moves too quickly. Even for someone like me that's living here in San Francisco, every week there's another model that's on top and you got to switch and figure out what that is. Microsoft is betting, you know, just come to us, come to Copilot. We'll figure it out for you. We have access to all of the models and we'll serve you the right one for your task. So hard

Three modes and the model race bet

01:18model for a hard task, you know, more capable, cheaper model for an easier task. The new co-pilot has three modes. Chat, which is like your typical chatbot, code, which is kind of like a co-working where you can vibe code and do other kinds of coding. And then autopilot, which I really think stole the show in terms of this new co-pilot. I'm calling it kind of like Muse for business because it's very intuitive. that's already connected to all of your apps, all of your email, all of your workflows. It kind of just works like a personal assistant on your behalf. So, I asked Ache Nadella about this, kind of told him that I thought it stole the show. Here's how he described it. >> Think about it, right? We launched uh in

Nadella on autopilot and composition

01:59fact co-pilot task um just around the same time as open clock came out and we saw a ton of activity uh in the consumer space. uh but you know autopilots are fantastic until you have to do something with the output of an autopilot. So this is where I don't think of any one form factor as the be all end all right this is where like I'll give you another example right even with co-work and excel right coowork can create fantastic spreadsheets but at some point I want to reason and that's the so there's an outer loop uh that's kind of co-work inner loop is the agent loop inside of Excel same thing with autopilot I think of autopilot as something that has an identity it does complete jobs but then

02:45when it hands off or when I am trying to instruct it, I need my co-pilot uh and my cowork and so this is where I don't think of this as any one thing but it's the composition but to your point having autopilot is about that next generation of I would say automation uh in the enterprise that I think is going to have very high ROI for uh businesses adopting it. So this autopilot mode which I think a lot of enterprises are going to be interested in that rules out on the coming weeks and sort of asked Nadella you know why not give this to people sooner right away since you know it looks useful and people are getting used to sort of these consumer habits having an agent with Muse and Instinct and others. Um I heard your guys

Trust and Agent 365

03:27conversation just before I came on. You were talking about Muse and how you needed to trust a corporation to actually hand over all of your data and that is something that Microsoft is absolutely thinking about really part of its core you know mission is to make sure that the trust the permissions the security is in place here's what Nadella had to say about that >> trust is going to be the maximum biggest issue for us in fact it's you're going to hit that on the consumer side uh in fact if I look back at even our experience experience in the consumer space. That is it, right? Okay. Can I really trust it with all of my credentials when it does autonomous activity? Uh how do I make sure that this is something that I can feel that

04:10I'm in control? I can audit. And in the enterprise, this is everything. That's why when you even think about copilot, we don't think about it in in an isolation like any form factor like autopilot. Agent 365 is probably the most important. You know, it's the product that is getting the fastest adoption in the enterprise. that ability to observe everything, govern everything, set policy, have security, have the phops. By the way, the other thing that you'll notice is that this thing once the subsidies stop for everybody, uh, this is going to there's marginal cost to tokens. And so one of the core business model realizations is that this is there's a certain amount of subsidy anyone can do but at the end of

When the AI subsidies stop

04:49the day uh this all has to be about the return that the user gets whether it's in the consumer space or in the enterprise space. >> So I thought that was one of the most interesting parts of the interview. He says when the subsidies stop and that's part of the reason that they're not just rolling autopilot out immediately to everyone because of course requires tokens requires compute can be expensive and Sachi Nadella at the end he says we got to make sure that our customers have ROI their return on investment um and Nadella's always been one of these CEOs that has to create value I mean of course they all do but for the enterprise so it was just interesting to hear him speak so candidly like that and

05:29I'm sure you as co-pilot the new one rolls out um we'll hear from different companies will it be enough to take them away from you know an anthropic or open AI contract I mean that is the real question the battle in AI over enterprise is extremely fierce and it's extremely lucrative >> and you're proious you know China top of mind obviously with regards to AI and things like that you trade talks going on you had the big state dinner with Nadella in attendance I believe so did he have anything to say about sort of AI and proliferation with China. >> Yeah. And you know it's a huge topic here especially as we're talking about safety and alignment and if the US AI industry slows down is China going to do

US-China AI norms

06:10that with Xiinping coming over here this week. Um you know questions is there room for them to agree on sort of some basic stuff. So certainly did talk to Nadella about that and you know he was optimistic. I asked him you know what needs to happen and he thinks that it's in both countries interest to get on the same page at least when it comes to notification. So if there is a cyber security attack, there is sort of a direct line from president to president to say this is what's happening similar to what happens in the military right because AI is that powerful. Uh have a listen to what he said. >> I would sort of encourage uh the US and China because I think both sides will care about the same set of things at the

06:49end of the day which is they want to be able to have this technology actually help their citizens get value. Uh so diffusion is sort of one thing that both sides will care about and then to be able to do that safely uh is also going to be important to both sides. So the more there are norms that they set uh and the US in particular can lead uh the better off we are as a world. >> So here I'll be a little bit skeptical. Well, I mean, we're a long way from actions and I think a set of norms, but if we get sort of notifications, a direct line of communication out of the US China summit this week, that's positive. You guys saw how many of American business leaders and politicians and important people were in

07:31the room at last night's state dinner. Nadella was there. So some progress um and Nadella seemed you know fairly optimistic certainly that incentives on alignment and safety um would be sort of similar for both countries and there would be at least some takeaways. >> Dearra we've seen a growing trend of states starting to really look at regulation of the data center buildout. You look at the one-year moratorium we have in New York on hypers scale data centers. You look at the uh pipeline audit project audits we see in Texas under Greg Abbott. And then setting aside the governments, you just have kind of the plain push back from the everyday American who says, "I don't want this data center in my backyard. I

Data center pushback and NDAs

08:10don't want my power bills to go up. I don't want my water bill to go up. I don't want the lights." What's your sense of how Satia and Nadella is thinking about that and what how that might impact Microsoft's plans as they look to fund this build out and push themselves forward? You know, I don't remember the gap ever being larger between how the technology industry feels about something this big, the data center buildout that is going to be the backbone that is going to power the AI revolution and how sort of the average American feels. So, when I asked Nadella about this, he kind of gave me the answer that you hear from a lot of the big tech CEOs. you know, we're providing benefits. We're investing back in the communities. But

08:50something that Microsoft is doing differently, and I, you know, I gave him credit for this, they sort of backed away from the NDA, the non-disclosure agreement that tech has really had in place when they build these data centers and build in different communities. And I asked him, has that been effective? And he says, and will it be the industry norm? Right? That's what I was curious about. will Google will um the other hyperscalers will Amazon have to follow and you know be more transparent which is what the communities want and you said he thought so. So Microsoft is you know in my opinion kind of leading the way on this. Will it be enough? That is another question because you guys know very well that this is just such a

09:32polarizing issue such a hot button issue for the communities where these are being built. >> Yeah. I mean the NDA it seems like the NDAs aren't really an option anymore because the communities will not allow it effectively because there's been such opposition. >> Yeah. And you know something that he talked about and you know Dina Pal McCormack at Meta has talked about and the others as well is really you know can giving back to these communities building hospitals building schools putting money into them. Um it sounds sounds great in practice. Um but you know these t these things take time. you have a buildout, you have, you know, sound in some cases that affect the community. So, these are really real

10:12issues and I think that tech as a whole, the hyperscalers, the neoclouds, they're having to think about this in new ways because I'm not sure that anyone predicted just how controversial this would be a few years ago. But to be able to, you know, build more gigawatts of data of compute in America, they have to figure this piece out. It's absolutely essential.