Microsoft CEO Satya Nadella said that DeepSeek had set a “new bar” for his company’s AI ambitions. He pointed out that the startup’s efficiency, use of pre-trained AI models, and use of a small team to achieve top ranking on the app store all caught his attention.
Nadella spoke at an employee-only town hall last month where he said what was most impressive about DeepSeek was that it was a great reminder of what 200 people could do when they came together with “one thought and one play”. Most importantly, building an open source project and “just leaving it there” was not enough; turning it into a number one product in the App Store was what Microsoft had yet to achieve with Copilot.
Nadella also disclosed that Microsoft was considering the development of its own AI model. He explained that having a proprietary platform made it easier for Microsoft to provide services optimized for its business software. The Microsoft boss was confident that his company would build its own capacity to complement what it was doing with OpenAI.
Nadella says DeepSeek is the new bar for Microsoft’s AI expectations
Microsoft’s Nadella told employees that DeepSeek’s R1 AI model had set “the new bar” for his company’s AI goals, saying that the startup’s ability to reach the top of app store rankings caught his attention the most. He also mentioned that Microsoft had not yet seen that kind of App Store success with Copilot, revealing that Copilot was often outside the top 100 apps. That result is despite Microsoft having access to OpenAI’s latest models, spending big on a Super Bowl ad, and redesigning Copilot to include voice and vision features.
Nadella and his senior leadership team also discussed DeepSeek and the company’s $80 billion investment in AI at length, answering questions from employees about the big expenditure and its effect on Microsoft’s carbon-free goals. The Microsoft executive opened up about his renewed focus on using Microsoft’s own AI work, not just OpenAI’s, to improve its position.
“When I think about what we’re trying to do with Muse, that’s the bar…You go do fundamental research, you bring out a model, and then translate it into a real breakthrough feature in Copilot.”
–Satya Nadella CEO of Microsoft
Microsoft unveiled its own Muse model last month, which has been trained on the Xbox game Bleeding Edge to generate gameplay. Microsoft expects Muse to help Xbox developers prototype games or even use them to preserve games and optimize them for modern hardware.
Muse introduces short, interactive experiences in Copilot
Some short, interactive AI experiences will reportedly be part of Microsoft’s Copilot Labs soon, thanks to Muse. The Microsoft team is interested to see if this work makes Copilot more appealing to the masses, most of whom are currently playing around with ChatGPT’s improved image generation.
Microsoft’s AI challenge—beyond having a popular app—will be moving fast, just like it did with onboarding DeepSeek, taking advantage of new models or developing key advances itself. Jay Parikh, head of Microsoft’s new CoreAI engineering group, said what DeepSeek had achieved made a point for the Microsoft team regarding how it worked together internally across organizational boundaries. Parikh added that DeepSeek was just a reminder “to continue to push to go faster” because the innovation happening in these smaller teams worldwide was “so impressive” from a speed perspective.
Nadella also believes that the $80 billion bet on AI was a key investment, especially as Microsoft reshapes its engineering groups to focus on an AI-first app stack. He pointed out that at some level,’ Microsoft wanted to position itself so that every workload going forward would look like ChatGPT. According to Nadella, ChatGPT did not just use an AI accelerator; it had a state in Cosmos DB, Azure search, and lots of other places.
Microsoft CFO Amy Hood said her company was focused on making the $80 billion investment “count” for customers. She further disclosed that Microsoft had almost “$300 billion of contracted revenue to deliver on” over the next year or two, so that demand supported the large investment.
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