Ex-Google CEO, Eric Schmidt, Calls Microsoft-OpenAI Partnership, “The Stupidest Idea Ever”

The partnership between Microsoft and OpenAI is one of the most fascinating and complex alliances in the AI industry, representing both collaboration and competition. Although it came with shared goals and has yielded early successes, former Google CEO Eric Schmidt has openly criticized the deal, calling it “stupid” in terms of strategy and long-term impact for Microsoft.

Schmidt’s comments during a recent interview with CNBC underline the intriguing nature of this partnership, where Microsoft and OpenAI are not only partners but also competitors, each seeking to dominate the rapidly evolving AI industry.

During the interview, Schmidt questioned Microsoft’s decision to invest heavily in OpenAI, describing it as “the stupidest idea I’d ever heard.” He reasoned that by outsourcing much of its AI leadership to OpenAI, Microsoft risked ceding control over one of the most important technologies of the future.

According to Schmidt, this move placed Microsoft in a vulnerable position, relying on a third-party entity to lead AI advancements rather than fully controlling its own AI trajectory.

“When Microsoft did the OpenAI deal, I thought that was the stupidest idea I’d ever heard, outsourcing essentially your AI leadership to OpenAI and Sam and his team. And yet, they’re on their way to being the most valuable company,” Schmidt said.

He said that Microsoft should have been more focused on building and advancing its internal AI capabilities rather than outsourcing such a pivotal part of its future to OpenAI.

This comment reflects the broader industry debate about the risks and rewards of partnerships in AI. While Microsoft’s investment in OpenAI has yielded significant benefits, such as integrating OpenAI’s advanced models like GPT into its Azure platform and products like Microsoft 365 Copilot, Schmidt’s criticism hints at the underlying tensions in this partnership. It highlights the possibility that Microsoft may have made itself overly dependent on OpenAI for its future in AI, a technology seen as crucial for the next wave of computing innovation.

However, Microsoft’s partnership with OpenAI has so far paid off in many ways. For instance, Microsoft’s early investment in OpenAI gave the company access to state-of-the-art AI technology, which it has been able to integrate into its cloud services, productivity software, and AI-powered tools. This collaboration has helped Microsoft position itself as a major player in AI, competing directly with Google and Amazon in the cloud computing and AI markets.

The partnership has also allowed Microsoft to differentiate its products from competitors by offering AI-powered enhancements that improve productivity and efficiency. For instance, the integration of OpenAI’s language models into Microsoft 365 through tools like Copilot has made it easier for users to automate tasks, generate content, and streamline workflows, giving Microsoft a competitive edge.

However, Schmidt’s comments raise important questions about the long-term implications of this arrangement. He implies that Microsoft may have risked losing some degree of control over the direction of its AI development, by aligning itself so closely with OpenAI, especially as OpenAI continues to grow its own brand and user base independently.

The Irony of Partnership and Competition

What makes the Microsoft-OpenAI relationship even more complex is that, while they are partners, they are also competitors in many respects. OpenAI, though benefiting from Microsoft’s backing, remains an independent entity with its own goals and ambitions. The AI models developed by OpenAI are platform-agnostic, meaning they can be used by other cloud providers like Amazon Web Services (AWS) or Google Cloud. This creates a situation where Microsoft is simultaneously a customer, investor, and potential rival.

OpenAI’s independence has also allowed it to create partnerships and business relationships beyond Microsoft, giving it the flexibility to operate as a neutral AI provider. As OpenAI continues to develop its platform and expand its user base, it could potentially compete with Microsoft in offering AI-powered services to businesses and developers. This dynamic of collaboration and competition creates a tension that underscores Schmidt’s critique.

Schmidt also pointed out that while Microsoft has invested heavily in OpenAI, it does not have exclusive control over the AI models that OpenAI creates. This could eventually place Microsoft at a disadvantage, especially as other companies and startups gain access to the same technologies that Microsoft helped fund.

NVIDIA Chips And the Stargate Deal

Further complicating the relationship is the looming infrastructure issue. Microsoft and OpenAI’s heavy reliance on NVIDIA for AI chips is another point of concern for Schmidt. Most of the world’s AI projects, including those led by OpenAI and Microsoft, require NVIDIA’s specialized GPUs, which are critical for training and running large AI models. Schmidt noted that companies are spending billions on NVIDIA’s chips, which may create bottlenecks or strategic vulnerabilities in the long term.

“If $300 billion is all going to Nvidia, you know what to do in the stock market. That’s not a stock recommendation,” he said, admitting that Nvidia is in position to benefit from the AI boom than any other company.

To address this dependency, Microsoft and OpenAI have committed over $100 billion to the Stargate project, a next-generation data center designed to meet their growing demand for AI computing power. Set to launch in 2028, the project is a shared effort aimed at reducing reliance on external providers like NVIDIA by building proprietary infrastructure.

While the Stargate project is a significant step toward reducing external dependencies, it also highlights the growing complexity of the Microsoft-OpenAI partnership. As they collaborate on this massive infrastructure project, both companies are also working on separate AI projects that could one day compete for market share and influence in the AI industry.

The Symbiotic Yet Tense Relationship

The irony of the Microsoft-OpenAI partnership lies in its dual nature. On one hand, Microsoft’s investment in OpenAI has allowed it to be at the forefront of AI innovation, integrating cutting-edge technology into its products and services. On the other hand, the very entity Microsoft has helped to elevate is becoming a powerful competitor, as OpenAI’s technologies are accessible to Microsoft’s rivals.

Despite Schmidt’s characterization of the deal as “stupid,” the partnership has so far been fruitful for both entities. Microsoft has been able to position itself as a key player in AI, while OpenAI has benefited from Microsoft’s financial and technical resources. However, as AI evolves, the tension between collaboration and competition will likely intensify, especially as both companies seek to maintain leadership in this rapidly advancing field.