Microsoft Absorbs Inflection Microsoft pays Inflection AI $650 Million, hires most of its staff

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The Inflection AI logo merging with the Microsoft logo

Microsoft took over most of the once high-flying chatbot startup Inflection AI in an unusual deal.

What’s new: Microsoft hired Inflection CEO Mustafa Suleyman and much of the startup’s staff and paid roughly $650 million for access to its models and legal protections, Bloomberg reported. Inflection will shift from serving consumers to focusing on large companies.

How it works: Microsoft did not formally purchase any assets of Inflection, which remains a separate, independent company. $650 million is significantly less than the $1.3 billion in investment that Inflection received last year at a $4 billion valuation.

  • Microsoft paid $620 million for a non-exclusive license to serve Inflection’s models, including the Inflection-2.5 large language model, which will be available on the Microsoft Azure cloud service. Inflection said APIs will be available soon on Azure and other services.
  • Microsoft hired most of Inflection’s 70-person staff, including Suleyman and co-founder KarĂ©n Simonyan. The ex-Inflection hires joined a new Microsoft division called Microsoft AI. Inflection waived legal rights related to Microsoft’s hiring activity in return for a roughly $30 million payment.
  • Inflection will use its gains plus cash on hand to compensate its investors at $1.10 or $1.50 per dollar invested. Investors will retain their equity in Inflection.
  • The new organization, which includes some of Microsoft’s prior AI teams, will oversee the company’s AI efforts. Microsoft AI will develop and deploy consumer AI products like the Bing search engine and the company’s various Copilot assistants. Former Bing chief Mikhail Parakhin, who would have reported to Suleyman, departed.

Behind the news: Inflection was co-founded in 2022 by Suleyman (a founder of DeepMind, now a division of Google), Simonyan, and LinkedIn chairman Reed Hoffman with funding partly from Microsoft. The startup initially positioned itself as a competitor to OpenAI and Anthropic, seeking to develop AI assistants for consumers. Its flagship product was Pi, a chatbot trained to provide emotional support. Microsoft CEO Satya Nadella began courting Suleyman several months ago, and Suleyman wanted to bring Inflection’s staff along with him. Microsoft made a similar offer to OpenAI in November, during that company’s leadership shakeup, when the tech giant proposed hiring briefly-ousted CEO Sam Altman and many of his co-workers to staff a new organization at Microsoft.

Yes, but: The unusual nature of the deal — with Microsoft absorbing most of Inflection’s staff while leaving the startup intact as a company — may have been designed to avoid the antitrust scrutiny that comes with acquisitions. The deal doesn’t automatically trigger a review by U.S. regulators because Microsoft did not acquire Inflection assets. Microsoft’s close relationship with OpenAI has attracted attention from regulators in the U.S.UK, and EU.

Why it matters: Tech giants are searching for an edge in AI development after being briefly leapfrogged in the market by large language model startups. Microsoft invested $13 billion in OpenAI, and Nadella says that partnership remains a strategic priority. This year, Microsoft has sought to diversify its AI interests, sealing deals with Mistral and now Inflection, while also beefing up its internal efforts. The distribution channel for AI models increasingly runs through large companies and their cloud services.

We’re thinking: Even with strong talent, powerful backing, and a multibillion-dollar valuation, Inflection struggled to gain traction. Its journey from hot consumer startup to streamlined enterprise software provider shows how competitive the chatbot sector has become.


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