Microsoft has solidified its position in the AI sector by attracting a major client, TikTok, which now spends approximately $20 million monthly on OpenAI’s AI model services through Microsoft’s platform. This significant expenditure by TikTok, as of March 2022, accounts for nearly 25% of Microsoft’s total revenue from this sector. With an annual revenue projection of $1 billion for Microsoft, TikTok’s investment is a crucial factor in this growth.
Despite this success, Microsoft faces the risk of high customer concentration. ByteDance, TikTok’s parent company, is developing its own AI technologies that could potentially reduce its dependence on Microsoft’s services. To mitigate this risk, Microsoft is expanding its corporate client base, attracting companies like Walmart and Intuit, who pay millions monthly for AI services.
Additionally, Microsoft is diversifying its AI offerings beyond Azure OpenAI. The Copilot service, which integrates AI-powered features into Office 365 and other enterprise software, has seen its subscription volume double recently. This diversification strategy is vital for maintaining and growing Microsoft’s cloud business revenue.
The competition is intense, with TikTok initially using services from Google, Amazon, and Oracle before switching to Microsoft’s cloud technology. Microsoft has successfully pulled customers from these rivals, contributing to its strong performance. Intuit, for example, previously used Amazon’s servers but now relies on Microsoft’s services for its AI-driven financial advice functions.
Walmart, a long-term customer of Azure OpenAI services, utilizes this technology for personalized shopping recommendations. In the Middle East, G42 from Abu Dhabi spends millions monthly on Azure OpenAI services, partnering with OpenAI to develop AI tailored for the region.
However, there is uncertainty about whether companies like Walmart and TikTok will continue to rely on Microsoft’s technology as they develop their own AI models. While OpenAI prohibits the use of its technology to create competitive models, some customers still do so with apparent tolerance from OpenAI.
To reduce reliance on a few major clients, Microsoft aims to expand its clientele and revenue streams. Despite a recent 29% increase in cloud revenue, market expectations were not fully met, leading to a stock price decline. However, Microsoft remains optimistic about future growth, particularly in Azure revenue.
Furthermore, Microsoft sells a portion of its AI model revenue directly to enterprises, with these figures surpassing those of Azure OpenAI services this year. The company also generates substantial revenue by renting servers to OpenAI, enabling the development and operation of ChatGPT and related technologies.
