Microsoft launches $2.5 billion Frontier Company to embed AI engineers inside customer businesses

Microsoft launches firm to help companies adopt AI with $2.5 billion

SAN FRANCISCO, July 2 (Reuters) - Microsoft (MSFT.O), opens new tab said on Thursday it is creating a new company that will help customers select AI technologies that work for their businesses and generate returns on their investment. Microsoft Frontier Company, as the new operating entity is called, will kick off with $2.5 billion in funding from the tech giant to work with clients such as Unilever and Novo Nordisk. Large corporations are relying less on renting out AI from a single provider, such as Anthropic or OpenAI, and are instead using a mix of technologies, including open-source models, tailoring them to their needs. This is a costly affair and stretches ⁠the time it takes to generate a return on their investment. Microsoft Frontier Company will offer customers help to select and integrate AI tools - from Microsoft and outside - with that customer's unique internal data. Critically, the customers will get to keep the results of that work rather than send it back to Microsoft. The Windows operating system maker joins the likes of Palantir Technologies (PLTR.O), opens new tab, which is already using Nvidia's open-source models for such work with large customers, and cloud rival Amazon Web Services (AMZN.O), opens new tab, which kicked off a $1 billion embedded-engineer unit of its own. Patrick Moorhead, CEO of analyst firm Moor Insights & Strategy, said ⁠large businesses suspect that using models from Anthropic and OpenAI will eventually grant these frontier labs expertise to compete with them, especially in fields such as coding and law. Microsoft partly owns ChatGPT-maker OpenAI and had added Anthropic's models to its Copilot AI assistant earlier this year, partly in response to booming enterprise demand for ⁠the AI lab's offerings. Judson Althoff, CEO of Microsoft Commercial Business, said the new firm was born partly out of Microsoft's own experience when models such as China's DeepSeek and Google's Gemini began to catch up to ⁠OpenAI. "Three years ago, when we built Copilot, we made a mistake by binding it to OpenAI models only," Althoff told Reuters. "You wanted models to amplify your intelligence and be able to have ⁠that sort of swappability for state-of-the-art and fine-tuning." The combination of data and the models mattered more to the customer than any particular model, and they needed the flexibility to switch among AI models quickly, he said. Reporting by Stephen Nellis in San Francisco; Editing by Harikrishnan Nair Our Standards: The Thomson Reuters Trust Principles., opens new tab

Microsoft commits $2.5 billion and 6,000 employees to new AI implementation unit

Microsoft is investing $2.5 billion into a new group focused on assisting clients with AI implementations, becoming the latest tech company to commit hefty resources to helping businesses understand and adopt emerging artificial intelligence technologies. With the new venture, called Microsoft Frontier Co., the software vendor said Thursday that 6,000 employees will be embedded with clients, in a practice that's become known as forward deployed engineering. The division will contain existing Microsoft FDEs, technical consultants, support staffers and salespeople with experience in specific industries. Rodrigo Kede Lima, who's been leading Microsoft's Asia business, will be its president. The announcement comes two days after cloud rival Amazon said it was putting $1 billion behind an FDE initiative to support fast-paced AI engagements. Leading AI labs Anthropic and OpenAI both established FDE groups in May, partnering with private equity firms, banks and consulting firms. Alongside its technology peers, Microsoft has sunk tens of billions of dollars into building data centers that run generative AI models. Microsoft has also released a variety of AI services, with mixed results. The Microsoft 365 Copilot AI assistant has yet to gain anything approaching ubiquity in the business world, and the GitHub Copilot coding agent has ceded market share to newer players. Microsoft's stock has slumped 21% this year, by far the worst performance among the mega-cap tech companies. One concern on Wall Street is that AI models that quickly compose code might threaten mature software companies. Judson Althoff, CEO of Microsoft's commercial business, said the FDE effort stems from the realization that "customers are in very different places right now, and trying to really figure out AI." "Do they snap to one model from OpenAI or one model from Anthropic, or a family of models?" Althoff said in an interview. "Do they take it from a technology first mindset? How do they look at their existing business processes and operations?" Althoff credits data analytics software vendor Palantir with popularizing the FDE job title. The U.S. military, which keeps forward deployed forces abroad, has long relied on Palantir software, and the company sent FDEs to U.S. bases in Afghanistan, according to the prospectus for its 2020 direct listing. Earlier this year, Accenture and EY both touted plans to ally with Microsoft on AI-centric FDE programs. Relative to Palantir, Microsoft supports "more models, we support more connectors to data, more integrations with open systems of record," Althoff said. Microsoft has for years provided support and implementation services to customers. The company generated about $2.1 billion in revenue from enterprise and partner services in the March quarter, up 2.5% from a year earlier. Althoff said the company has had the most success when it takes a "very methodical approach towards working with customers to build out an intelligence platform" that protects their intellectual property and allows them to take advantage of "any model in the ecosystem."

Microsoft unveils $2.5B 'Frontier Company' to embed AI engineers inside customers

Microsoft is launching a new AI "company." It won't be a separate legal entity, and most of its 6,000 people already work at Microsoft. But the $2.5 billion behind it is real, and the stakes are big, given how many of its AI partners and rivals are racing to do basically the same thing. The tech giant on Thursday announced "The Microsoft Frontier Company," which will embed engineers inside customers to build and run AI systems. It will be led by Rodrigo Kede Lima, a longtime Microsoft sales and enterprise leader, most recently president of Microsoft Asia. This practice is known in the industry as forward-deployed engineering, in which a company sends its own technical employees to work inside a customer's operations to design, build, deploy and operate AI systems on-site rather than selling a tool and walking away. The model was pioneered two decades ago by Palantir, but in recent months the approach has become the hot new thing in enterprise AI. Amazon committed $1 billion to its own forward-deployed engineering initiative just two days ago. (Some inside Microsoft suspect that its rival may have caught wind of what it was planning and moved to announce first.) Anthropic and OpenAI launched rival ventures in May to put engineers inside enterprise customers. Unlike Microsoft's initiative, the OpenAI Deployment Company, as the ChatGPT maker's venture is known, is an actual standalone entity -- majority-owned by OpenAI but backed by more than $4 billion from a partnership led by the private-equity firm TPG. Similarly, Anthropic teamed with Goldman Sachs, Blackstone and Hellman & Friedman on a $1.5 billion venture -- not yet named -- to embed engineers inside mid-sized companies, starting with the investment firms' own portfolio businesses. Microsoft is attempting to one-up them all. "This goes beyond what has been labeled as Forward Deployed Engineering (FDE) and will be the largest, most capable, outcome-driven engineering organization in the industry," wrote Judson Althoff, CEO of Microsoft's commercial business, in a post announcing the new initiative Thursday morning. Responding to questions from GeekWire, a Microsoft spokesperson called the new initiative "a purpose-built company with its own leadership and financial accountability" but stopped short of calling it a separate legal entity or standalone company. The spokesperson said the organization "brings together more than 6,000 industry, engineering and AI professionals, drawn primarily from Microsoft's existing engineering and forward-deployed teams," noting that it will "grow through a combination of internal talent and external hiring across engineering, AI, and industry roles." Separately, some consulting roles are among those expected to be impacted by the round of layoffs anticipated next week. Microsoft wouldn't say whether the $2.5 billion is new spending or repurposed from existing budgets, or over what period it's being spent. The company also hasn't yet spelled out what the new organization means for the future of its existing consulting and services units. Across the industry, this is happening now because the payoff from AI has proven harder to capture than many companies expected. Businesses across the economy have adopted tools like ChatGPT, Claude, Gemini and Copilot, only to find that impressive demos don't automatically translate into results. The technology is powerful, but deploying it can be difficult inside a real company, with its own data, rules and entrenched ways of working. So the AI providers have started sending their own engineers to work inside those companies and do it for them, figuring out where the AI can actually help, then building it into the daily work. "Having the model alone doesn't change your workflows or how you operate," said Marc Nachmann, Goldman Sachs' global head of asset and wealth management, in an interview with CNBC about the Anthropic partnership. "You need people who can combine the technology with what's actually happening in the business and implement those changes." The big AI providers have multiple reasons to do this. Each of them wants to get more businesses using its AI platform at higher volumes. All of them are looking to drive long-term demand for the AI capacity they're collectively spending hundreds of billions of dollars to build. Another big reason: AI models are becoming commodities, getting cheaper and more similar by the month. The big money for the likes of Microsoft is in selling the services needed to make AI pay off inside a company, which is a far bigger market than just selling the models themselves. Microsoft is pitching privacy and trust as a selling point. Its promise is that a customer's data and hard-won knowledge stay the customer's alone. Microsoft says it won't feed them into training its AI models in ways that would hand the same advantages to the customer's rivals. It's also promising choice: customers can run whichever AI model fits the job, from OpenAI, Anthropic, Microsoft, or open-source providers, not locked into using one. Microsoft CEO Satya Nadella has argued that a company should be able to exchange one AI model for another without losing all the institutional knowledge it has built up. That's his test, as he put it, for whether a business still controls its own future. "The last thing any of us want is a world where every company across every sector is ceding value to a few models that eat everything they see," Nadella wrote in a June 14 essay. "If all the value is accrued by only a few models, the political economy will simply not tolerate it. There is no societal permission for an AI future that hollows out entire industries." Whether that vision of swappable AI models becomes a reality remains to be seen. There's actually a risk for customers that the opposite will happen in the forward deployed engineering approach. Even if they can theoretically swap in a competitor's AI model, working with Microsoft's engineers means their systems naturally end up running on Microsoft's cloud platform and related technologies, making it very difficult to jump ship. It's also not clear how new all of this really is for the company. Microsoft already runs a large in-house delivery arm -- Industry Solutions Delivery, the group that absorbed what used to be called Microsoft Consulting Services -- with thousands of consultants and engineers building and deploying technology inside customer organizations. Microsoft also has programs like FastTrack to help customers roll out its software, and over the past year it has been rolling out "forward-deployed engineering" teams with partners, including a dedicated practice with Accenture and a $1 billion, five-year alliance with EY. So ultimately the Microsoft Frontier Company is less a new company than a new push behind work the actual company was already doing, albeit bigger and better-branded than before.

Microsoft launches firm to help companies adopt AI with $2.5 billion

Microsoft has launched a new venture, Microsoft Frontier Company, backed by $2.5 billion, to guide businesses in selecting and integrating AI technologies. This move acknowledges that large corporations are increasingly opting for a mix of AI tools, including open-source options, rather than relying on a single provider. The company aims to help clients tailor AI to their unique data, ensuring they retain the benefits of their AI investments. Microsoft said on Thursday it is creating a new company that will help customers select AI technologies that work for their businesses and generate returns on their investment. Microsoft Frontier Company, as the new operating entity is called, will kick off with $2.5 billion in funding from the tech giant to work with clients such as Unilever and Novo Nordisk. Large corporations are relying ⁠less ⁠on renting out AI from a single provider, such as Anthropic or OpenAI, and are instead using a mix of technologies, including open-source models, tailoring them to their needs. This is a costly affair and stretches the time it takes to generate a return on their investment. Microsoft Frontier Company will offer customers help to select and integrate AI tools - from Microsoft and outside - with that customer's unique internal data. Critically, the customers will get ⁠to keep the results of that work rather than send it back to Microsoft. The Windows operating system maker joins the likes of Palantir Technologies, which is ⁠already using Nvidia's open-source models for such work with large customers, and cloud rival Amazon Web Services, which kicked off a $1 billion embedded-engineer unit of its own. Patrick Moorhead, CEO of analyst firm Moor Insights & Strategy, said large businesses suspect that using models from Anthropic and OpenAI will eventually grant these frontier labs expertise to compete with them, especially in fields such as coding and law. Microsoft partly owns ChatGPT-maker OpenAI and had added Anthropic's models to its Copilot AI assistant earlier this year, partly in response to booming enterprise demand for the AI lab's offerings. Judson Althoff, CEO of Microsoft Commercial Business, said the new firm was born partly out of ⁠Microsoft's own experience when models such as China's DeepSeek and Google's Gemini began to catch up to OpenAI. "Three years ago, when we built Copilot, we made a mistake by binding it to OpenAI models only," Althoff told Reuters. "You wanted models to amplify your intelligence and be able to have that sort of swappability for state-of-the-art and fine-tuning." The combination of data and the models mattered more to the customer than any particular model, and they needed the flexibility to switch among AI models quickly, he said.

Microsoft launches firm to help companies adopt AI with $2.5 billion

SAN FRANCISCO, July 2 (Reuters) - Microsoft said on Thursday it is creating a new company that will help customers select AI technologies that work for their businesses and generate returns on their investment. Microsoft Frontier Company, as the new operating entity is called, will kick off with $2.5 billion in funding from the tech giant to work with clients such as Unilever and Novo Nordisk. Large corporations are relying less on renting out AI from a single provider, such as Anthropic or OpenAI, and are instead using a mix of technologies, including open-source models, tailoring them to their needs. This is a costly affair and stretches the time it takes to generate a return on their investment. Microsoft Frontier Company will offer customers help to select and integrate AI tools - from Microsoft and outside - with that customer's unique internal data. Critically, the customers will get to keep the results of that work rather than send it back to Microsoft. The Windows operating system maker joins the likes of Palantir Technologies, which is already using Nvidia's open-source models for such work with large customers, and cloud rival Amazon Web Services, which kicked off a $1 billion embedded-engineer unit of its own. Patrick Moorhead, CEO of analyst firm Moor Insights & Strategy, said large businesses suspect that using models from Anthropic and OpenAI will eventually grant these frontier labs expertise to compete with them, especially in fields such as coding and law. Microsoft partly owns ChatGPT-maker OpenAI and had added Anthropic's models to its Copilot AI assistant earlier this year, partly in response to booming enterprise demand for the AI lab's offerings. Judson Althoff, CEO of Microsoft Commercial Business, said the new firm was born partly out of Microsoft's own experience when models such as China's DeepSeek and Google's Gemini began to catch up to OpenAI. "Three years ago, when we built Copilot, we made a mistake by binding it to OpenAI models only," Althoff told Reuters. "You wanted models to amplify your intelligence and be able to have that sort of swappability for state-of-the-art and fine-tuning." The combination of data and the models mattered more to the customer than any particular model, and they needed the flexibility to switch among AI models quickly, he said. (Reporting by Stephen Nellis in San Francisco; Editing by Harikrishnan Nair)