During its annual Ignite conference this week, Microsoft announced a spate of new offerings for its Azure cloud. Three in particular – the exclusively licensed GPT-3 language model, the Twilio-like Azure Communication Services, and Azure Orbital satellite-data platform – stand out for their potential to differentiate Microsoft in the cloud race.

OpenAI’s GPT-3 language model in Microsoft’s AI platform: Microsoft, which invested $1B in AI research firm OpenAI in mid-2019, holds an exclusive license to OpenAI’s GPT-3 natural-language model (including access to the underlying code). Microsoft plans to commercialize GPT-3 in its AI products and enterprise services, though details are limited. The general-purpose GPT-3 family, considered the largest and most advanced language model in the world with 175B parameters, can be applied to use cases ranging from journalism to chatbots, semantic search, and summarization. Microsoft has been investing in large AI models – what it calls “AI at Scale” – including its own Microsoft Turing model family as well as a supercomputer built to train OpenAI’s models. OpenAI will continue to make GPT-3 available to developers through its own Azure-hosted OpenAI API, which was launched Jun 2020 in limited beta.

Azure Communication Services: Microsoft also announced the launch of Azure Communication Services, which – similar to Twilio – streamlines the process for developers of adding voice- and video-calling, chat, SMS text-messaging, and traditional telephony to mobile apps, desktop applications and websites. The offering commercializes the enterprise-grade infrastructure used by Microsoft Teams (which supports 5B+ meeting minutes each day), and is accessed via a set of APIs and SDKs with “just a few lines of code.” Communications are encrypted and compliant with HIPAA and GDPR, and developers using the platform can also tap other Microsoft services such as Azure AI’s language translation. Microsoft calls it the “first fully managed communication platform offering from a major cloud provider,” though Google and Amazon do offer related features.

Azure Orbital: In a direct challenge to Amazon’s AWS Ground Station and AWS for Aerospace and Satellite Solutions, Microsoft announced the private preview of Azure Orbital, a ground station-as-a-service (GSaaS) that connects satellite data to the Azure cloud. The service will let operators control their satellites, and downlink and process “tremendous amounts of data from space” on Microsoft Azure. Microsoft will build its own ground stations and also partner with other ground-station networks. Its partners for ground stations, connectivity and other services include Viasat and SES, among others. The applications served will start with earth observation/IoT (e.g. geospatial data for defense, meteorology, and agriculture) and global communications (e.g. in-flight connectivity, maritime communications).

Differentiation continues to be the key challenge for the respective cloud players in the slowing (though still growing) cloud market. Amazon AWS and Microsoft Azure are the clear #1 and #2 players, followed by Google Cloud. Azure revenue grew by 47% in the most recent earnings quarter, though its 18-20% market share still lags behind Amazon AWS (31-33% market share). For Microsoft Azure, its differentiators have been its strength in the enterprise and hybrid cloud – which it is now building on top of in an effort to pull ahead.

Jun 19 2020 (3 Shifts): OpenAI releases an enormous general-purpose language API for commercial use

Nov 22 2019: Shifting tides around the leaderboard in the global cloud race

At its Battery Day event earlier this week, Tesla revealed plans to cut its battery costs – the most complex and expensive part of an electric vehicle – by 56% within 3 years. According to CEO Elon Musk, this would position it to offer a $25,000 vehicle (its current lowest-priced model is $37,990) and eventually reach an annual production target of 20M vehicles (from 367,500 vehicles last year).

Tesla plans to reduce battery costs through a combination of a new “tabless” battery cell design, in-house highly-automated battery production and recycling, changing the material composition and chemistry of its batteries, and better integration between the battery cell and vehicle.

Its push to shift battery production in-house will include manufacturing its own battery cells using new techniques (it already builds its own battery packs), buying unmined lithium deposits, and processing raw materials. Tesla aims to reach 10-20 terawatts of battery production per year and ultimately rely less on its top 3 battery suppliers (Panasonic, LG Chem, Amperex Technology).

With respect to the material composition of its lithium-ion batteries, Tesla is working to reduce and eventually phase out expensive cobalt in favor of nickel. (Musk has urged mining companies to mine more nickel.) It is also developing ways to treat silicon – which is abundant but has challenges with degradation – so it can use a more raw (and less expensive) metallurgical grade.

Tesla expects the same advances to result in a 54% increase in driving range. In the slightly nearer term, it plans to launch a new Plaid version of its flagship Model S in 2021, which will cost about $140K and be able to run 520 miles on a single charge (its current Model S Long Range Plus can go 400 miles).

Reactions to the announcements from industry watchers were mixed – with some pointing to similar advances from competitors, the lack of tangible progress, and no mention of the expected “million-mile battery.” Lucid Air, for instance, has reportedly already developed a car that can go 517 miles on a single charge. The presentation also lacked specific dollar targets for cost per kilowatt-hour, though the 56% planned reduction suggests a cost far below the industry-standard $100 per kWh. The 3-year timeline, along with a sky-high valuation, were also key drivers in the drop in Tesla’s share price (Musk had originally predicted a $25K price-point by 2021).

A $25,000 price point would, however, make a Tesla competitive with a traditional car. It also holds a fairly wide lead on its competitors, given its multiple layers of technological advances. If Tesla can get close to its cost reduction and production targets, it will continue to be the player to beat in the electric-vehicle industry. With California – often a bellwether for national regulation – recently instituting emission rules that could bar new traditional internal-combustion vehicles by 2035, Tesla is looking well-positioned for an electric-vehicle future.

Sep 11 2020 (3 Shifts): GM will manufacture Nikola’s electric and fuel-cell trucks – if Nikola doesn’t implode

Jun 5 2020 (3 Shifts): Investments may spur a rebound in China’s electric-vehicle industry

Earlier this week, the Big 4 accounting firms – Deloitte, KPMG, PwC, and EY – released a joint framework for environmental, social and governance (ESG) reporting standards. The effort, in collaboration with the World Economic Forum’s International Business Council (IBC), is intended to encourage the IBC’s approximately 130 large member companies to adopt a coordinated ESG reporting approach and incorporate into their 2021 financial reporting.

The release comes at a time when ESG-focused investing – which considers a company’s performance relative to a broad spectrum of social issues ranging from its carbon footprint to the diversity of its leadership – is at an all-time high. An estimated $19B was invested in ESG-focused ETFs in 2020, compared to just $8B last year. Deloitte estimates that half of all assets under management in the US could have an ESG mandate by 2025. Given the amount of capital being deployed against social impact, investors have become increasingly restless about the lack of consistent metrics.

The Big Four framework includes 21 core metrics and 34 expanded metrics organized across 4 pillars: Principles of Governance (how a company defines and adheres to an ethical purpose), Planet (e.g. climate change, ecological impact, and water consumption), People (e.g. diversity, pay equality, employee health, training) and Prosperity (e.g. employment, wealth generation, innovation, community impact).

The criteria were developed with recognition and consideration for existing frameworks in development, including The European Commission’s Non-Financial Reporting Directive, the International Organization of Securities Commissions’ (IOSCO) sustainability standards development, the International Federation of Accountants’ (IFAC) calls for an “International Sustainability Standards Board” alongside the International Accounting Standards Board (IASB), and the US Securities and Exchange Commission (SEC) adjusting its rules to enhance human capital disclosures.

With the pandemic, wildfires and hurricanes, and social issues dominating headlines, there has been growing public attention on ESG issues. This release of the first coordinated approach to ESG reporting by the leading accounting firms could be a meaningful signal of a sea change. The Big 4 are certainly equipped to provide program management, internal audit and assurance services to companies looking to adopt the standards.

Challenges remain, however, and whether a critical mass of businesses choose to adopt the standards remains to be seen. Some may view adoption as opening their businesses up to greater liability. Parallel efforts across geographies and industries are stirring enthusiasm but could also complicate implementation. Finally, consistent and effective measurement will not be easy, even with agreed-upon reporting standards.

Sep 18 2020 (3 Shifts): Major climate commitments by tech firms & energy giants

Feb 26 2020: Billions in climate funding from Bezos, Microsoft, KKR & others – Why now?