In the global cloud computing market competition, Microsoft has successfully transformed its cloud services into a lucrative business by integrating OpenAI's artificial intelligence technology. Taking TikTok as an example, according to a person who has seen internal financial documents, as of March this year, TikTok's monthly expenditure on purchasing OpenAI's AI model services from Microsoft was as high as nearly $20 million, which accounted for almost 25% of Microsoft's total revenue from this business. At that time, Microsoft's annual revenue from this business was expected to reach $1 billion, or $83 million per month.

However, this success hides the risk of high customer concentration. TikTok and its parent company ByteDance are also ambitious in the AI field, planning to develop conversation and image generation software comparable to OpenAI. This could mean that once TikTok's AI technology matures, its dependence on Microsoft will decrease, leading to a rapid slowdown in the growth of Microsoft's cloud business revenue.

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To mitigate this risk, Microsoft needs to expand the number and types of companies purchasing such artificial intelligence. Microsoft is seeking other reliable enterprise customers, such as Walmart and financial software company Intuit. These customers pay Microsoft millions of dollars per month to access OpenAI models in the first quarter. Intuit's participation is particularly eye-catching because the company previously mainly spent money renting Amazon servers.

At the same time, Microsoft is pursuing a diversification strategy and is making money through various ways by utilizing AI technology. Microsoft's cloud services are not limited to Azure OpenAI services; the company also sells AI writing, coding, and summarization features, collectively called Copilot, to existing customers of Office 365 and other enterprise software. CEO Satya Nadella stated that the subscription volume of Copilot has doubled in the past three months, with financial service companies being one of the main buyers.

TikTok Becomes a Major Customer for Microsoft AI

Reports indicate that Microsoft has successfully captured customers and market share from its main competitors—Google, Amazon, and Oracle. For instance, TikTok, which originally primarily used cloud services from Microsoft's competitors, has now shifted to purchasing Microsoft's cloud services, bringing significant revenue to Microsoft's cloud business.

Intuit has developed a series of AI features that provide financial advice to customers based on their personal data, and the company previously mainly spent money renting Amazon servers. Intuit CEO Sasan Goodarzi stated in May that since September, more than 24 million customers have used these features, and Intuit plans to "accelerate investment in this area" over the next year.

Walmart is a long-term customer of Microsoft's cloud services and has stated that it is using this technology to personalize shopping recommendations. Another customer that spends millions of dollars per month on Azure OpenAI services is G42, a company based in Abu Dhabi, which previously announced a collaboration with OpenAI to develop AI for customers in the Middle East.

It is currently unclear whether Walmart or TikTok is using Azure OpenAI services to improve their own competitive AI models. Once their model technology matures, their spending on Microsoft may decrease. Reports suggest that using OpenAI's technology to develop competitive AI violates OpenAI's rules, but many customers still do so. OpenAI seems not to enforce these rules, possibly because it has been accused of violating intellectual property rules when training its most advanced AI.

Last year, it was reported that ByteDance was using OpenAI's GPT-4 model to train its internal AI models, partly by having OpenAI's chatbot generate text snippets that ByteDance then inputs into its own models. In response to that report, ByteDance stated at the time that it was adopting OpenAI's models to develop its own models "in a very limited scope."Facing the risk of high customer concentration, Microsoft seeks to expand its customer base and diversify profit models. However, Microsoft leverages artificial intelligence from OpenAI to achieve profit growth, with TikTok and other major customers being key, but the company faces the risk of high customer concentration. To meet the market's high expectations for this business, Microsoft needs to continue attracting and retaining more major customers, as investors demand that it fulfills its promises regarding the business prospects. Previously, the company had already spent tens of billions of dollars funding OpenAI's technology and the data center servers that handle it. It is widely expected that these investments will eventually translate into profits.

On Tuesday, Microsoft reported financial results showing that its cloud revenue overall sales growth of 29% in the second quarter was below market expectations, and its stock price fell more than 7% after hours, with Amazon, Datadog, and Snowflake following suit. On Wednesday, Microsoft's stock fell more than 2.5% in the morning.

Google Cloud's sales also grew by 29% in the June quarter, but the business is much smaller than Azure, which means that market share is being taken away by Microsoft. Despite the negative market reaction, Microsoft remains optimistic, stating that it expects Azure revenue to accelerate in the coming year.

Microsoft is using artificial intelligence technology to make money in various ways. In addition to Azure OpenAI services, Microsoft also sells artificial intelligence writing, coding, and summarization features (collectively known as Copilot) to its existing customers of Office 365 applications and other enterprise software. On Tuesday, CEO Satya Nadella stated that the number of customers purchasing 10,000 or more Copilot subscriptions doubled between March and June. Financial services companies have been one of the biggest buyers, but the overall scale of this business is currently unclear.

Furthermore, Microsoft also draws a certain percentage of revenue from direct sales of models from OpenAI to enterprises, and this figure unexpectedly exceeded Azure's OpenAI services this year. In addition, Microsoft generates billions of dollars in revenue each year by leasing servers to OpenAI (although with a lower profit margin), allowing the startup to run ChatGPT and develop related technologies.