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Microsoft pays Inflection $650 mn in license contract while plucking top workers, source claims

Microsoft headquarters at Issy-les-Moulineaux near Paris, France, February 9, 2024

March 21 (mod1s) - Microsoft (MSFT.O), opens new tab has agreed to pay AI company Inflection approximately $650 million in cash in an unusual arrangement that would enable Microsoft to utilize Inflection's models and recruit most of the business's personnel including its co-founders, a source familiar with the issue told Reuters on Thursday. 

The high-profile AI startup's models will be offered on Microsoft's Azure cloud service, the person added. Inflection is utilizing the license fee to compensate Greylock, Dragoneer and some other investors, the source continued, indicating the investors would receive a return of 1.5 times what they paid.

Microsoft recruited Inflection co-founders Mustafa Suleyman and Karen Simonyan on Tuesday, along with majority of the 70-person team at the AI business, for a newly launched consumer AI branch named Microsoft AI. The major software business has been aiming to consolidate and grow its AI services for consumer goods. 

Suleyman will be CEO of the unit, while Simonyan will join as head scientist. Other workers, including Inflection's vice president of engineering, have also joined Microsoft, according to LinkedIn profiles.
Microsoft refused to comment, while Inflection AI did not immediately reply to a Reuters request for comment. 

The information of the purchase was initially revealed on Thursday by the Information. 

Inflection AI has emerged as one of the most high-flying brands in generative AI after receiving $1.3 billion from Microsoft and Nvidia (NVDA.O), opens new tab in a combination of cash and cloud credit at a value of $4 billion in June. It has constructed its own foundation models and operates a chatbot named Pi, which it claims had more than 1 million daily active users earlier this month.

Now with a new CEO, Inflection announced on Tuesday it would change its emphasis on selling models to business clients. 

Experts said the transaction might bring greater regulatory attention on Microsoft, which already facing inquiry from the U.S. Federal Trade Commission on its AI investment. 

"This deal could be seen as an effort to reduce competition in the foundation model markets, as Infection is going to be a shell of its former self," said Steven Weber, professor at the UC Berkeley School of Information, who has received research funding from technology firms including Google and Microsoft.


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