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Under the terms of the deal, Microsoft will allocate $620 million to acquire a license for Inflection’s AI models, along with an additional approximate sum of $30 million to settle any legal matters stemming from the substantial recruitment efforts.
As per sources familiar with the matter, Microsoft Corporation (NASDAQ: MSFT) announced that it would pay a total of $650 million to Inflection AI in order to license its AI software. This development comes soon after Microsoft hired Inflection’s co-founders Mustafa Suleyman and Karen Simonyan earlier this week on Tuesday.
The unconventional arrangement resembles an “acqui-hire” model, but without an actual acquisition taking place. Legal and industry analysts speculate that Microsoft’s Inflection deal could potentially trigger antitrust inquiries from US regulators. This comes as authorities intensify their scrutiny of major technology firms’ AI-related investments and collaborations in recent times.
Sources familiar with the matter told SCMP that Inflection AI, now operating with a significantly reduced workforce, is exploring options to divest excess computing capacity. This includes access to computational resources utilized for tasks like AI model training.
The company is reportedly in discussions with its cloud computing partner CoreWeave to negotiate a partial refund. Thus, this move aims at cutting costs associated with AI model development as Inflection pivots from a consumer-oriented to an enterprise-focused business model.
As part of the agreement, Microsoft will pay $620 million to license Inflection’s AI models and approximately $30 million to relinquish any legal claims related to the significant staff recruitment.
Inflection AI Charts New Course with Microsoft
The agreement with Microsoft will provide Inflection’s investors with full compensation but with a modest return on their investment. Nevertheless, these investors won’t fetch any immediate substantial gains considering the earlier lofty valuation of Inflection at $4 billion following a $1.3 billion fundraising round last year, which now seems overly optimistic.
During a period of heightened investor interest in chatbots last year, Inflection introduced Pi, a chatbot touted as a superior personal assistant compared to its competitors. However, according to Suleyman’s recent statements to Bloomberg, Inflection struggled to establish a viable business model.
As the company charts a new path forward, Reid Hoffman, a venture capitalist and Microsoft board member, will remain involved with Inflection as a director and co-founder. Moreover, Sean White, previously Mozilla’s chief research and development officer, will take on the role of CEO.
In a Tuesday LinkedIn post, Hoffman expressed optimism about the developments, stating it was a “good day for everyone involved in Inflection”. Furthermore, Inflection will retain ownership of its proprietary technology. In a blog post on Tuesday, the company asserted its readiness to serve enterprises, including Microsoft, highlighting its expertise in training, customizing, and enhancing large-scale AI models, positioning itself as a leading AI platform for businesses worldwide
