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After raising $1.3B, Inflection is eaten alive by its biggest investor, Microsoft
March 31, 2024

After raising $1.3B, Inflection is eaten alive by its biggest investor, Microsoft

Reading Time: 3 minutes

In June 2023, Inflection announced it had raised $1.3 billion to build what it called ‘more personal AI.’ The lead investor was Microsoft.

Today, less than a year later, Microsoft announced that it was essentially eating Inflection alive (though I think they phrased it differently).

Co-founders Mustafa Suleyman and Karén Simonyan will go to Microsoft, where the former will head up the newly formed Microsoft AI division, along with ‘several members’ of their team as Microsoft put it — or ‘most of the staff,’ as Bloomberg reports it. Reid Hoffman will stay behind with new CEO Sean White to try to salvage what’s left of the company, which, I feel I have to repeat, raised $1.3 billion dollars 9 months ago and $225 million in mid-2022.

Inflection’s thesis was a conversational AI that you could talk to normally via multiple platforms, and which remembered you and previous conversations, making it more personal and useful. A lovely idea, but Pi, their AI, never really got close. It was fine, but even with all that money they couldn’t keep up with the rapid advances in capabilities and services being offered by OpenAI (which Microsoft, hedging its bets, also backs), Google’s Gemini (which has the home field advantage in search), and Anthropic (which made its play for safe, boring applications at which AI can excel).

Perhaps the pitch was destined for failure: it’s not really clear people want a personalized AI, when the things already sit so comfortably in the uncanny valley of humanity. They may not want their business writing expert AI, their architectural sketching AI, and their therapeutic chat AI to know one another at all. To unify them is certainly an approach, but whether the market rejected it, or Inflection’s tech simply fell short of its aims, Pi always seemed to us a respectable also-ran.

Of course, taking this shot was immensely costly, probably to the tune of hundreds of millions of dollars, with, I imagine, negligible revenue, relatively speaking.

How long do you continue throwing money in the hole? When does it stop being a long play and inverts into a waste of capital? (I don’t say a waste of effort, as the company produced a lot of valuable work in the field and its researchers no doubt have pride.) And who makes that call?

Whoever it was, here is ‘The new Inflection’ now: minus its two most technically substantive co-founders (sorry Reid), minus the product that it invested a fortune in (there will be ‘no immediate changes’ to Pi, which is basically a death warrant), minus some or most of the team that built it, and one imagines minus a lot of the money that was contingent on performance. Hoffman and White have their work cut out for them.

The new focus, on an ‘AI studio business, where custom generative AI models are crafted, tested and fine tuned for commercial customers,’ probably would have been fine to focus on a year or two ago, but I suspect that at this point they will be fighting over crumbs.

And then there’s Microsoft.

What’s that I hear? An echo from the ’90s? Embrace… extend… extinguish…

Are they the good guy here, rescuing a valuable team from the wreckage of a business that was in danger of taking them down with it? Or are they opportunists who backed multiple horses in the same race, with the express intention of gleefully devouring any of them that tripped before the finish line?

I mean, it was only in November that we saw them take a flying bite at OpenAI — literally the exact same thing!

For a few hours, OpenAI was the fallen horse, and Sam Altman and Greg Brockman and their loyalists were the meat! Ultimately Microsoft got a bit of extra leverage on the company instead of eating it alive.

Now they’ve got their second choice, and probably a lot cheaper. Inflection doesn’t have the momentum of OpenAI, which was perhaps at its zenith of ambition thus far when the coup was attempted. We’ll see if Suleyman and Simonyan can lead the new AI division effectively — I don’t know about you, but I would be pretty skeptical of their instincts after seeing a billion-dollar enterprise evaporate so quickly. Would you hire them after all this?

Whatever the circumstances behind this sudden fall, it emphasizes the primacy of legacy tech companies in this space. Whether it was OpenAI or Inflection, Microsoft was feeding their cash and compute addictions, whispering in their ear about partnerships, and then as soon as they tripped, out came the hidden fork and knife. You think Google isn’t ready to do the same thing to Anthropic? You don’t think Apple would do the same if it could?

As always in tech: Those who can, build; those who can’t, buy… by any means necessary.

Reference: https://techcrunch.com/2024/03/19/after-raising-1-3b-inflection-got-eaten-alive-by-its-biggest-investor-microsoft/

Ref: techcrunch

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