Microsoft is focusing on its plans beyond Open AI³⁵ by directing internal researchers and resources to make smaller models that can take the place of GPT-4 in relevant situations.

What’s going on here?

Microsoft wants to build its own advanced AI to reduce costs and dependence on OpenAI.

What does this mean?

Microsoft is directing its researchers to create conversational AI models that perform nearly as well as OpenAI's but are much smaller and cheaper to run. This in-house AI is already being tested by Microsoft's Bing team for features similar to ChatGPT. Orca and Phi models from Microsoft are likely the results of the same push.

The goal is to save on the ballooning compute costs of large AI models. Even though Microsoft has invested over $10 billion in OpenAI for exclusive access to its tech, unchecked costs from widespread use could get out of hand fast. Smaller "distilled" models that mimic the capabilities of behemoths like GPT-4 can help control expenses while providing customers with powerful AI features.

Why should I care?

This gives Microsoft options beyond OpenAI to deliver performant and affordable AI products. It's a smart business move to avoid overreliance on external partners, however fruitful the relationship may be currently. Plus having in-house alternatives puts Microsoft in a better negotiating position with OpenAI down the road.