TikTok Spending $20M Monthly on Microsoft Cloud AI

TikTok emerges as a major customer of Microsoft’s AI cloud services, with potential implications for the AI industry and Microsoft’s financials.

TikTok’s reliance on Microsoft’s AI: As of March, TikTok was paying Microsoft nearly $20 million per month to access OpenAI’s models, making it one of the largest customers of Microsoft’s AI cloud computing services.

• TikTok’s payments to Microsoft accounted for almost a quarter of the revenue generated by Microsoft’s increasingly profitable cloud division.
• Microsoft’s cloud AI business was on track to earn $1 billion in annual revenue, highlighting the growing importance of AI services in the company’s portfolio.

ByteDance’s AI ambitions: TikTok’s parent company, ByteDance, has been developing its own large language model (LLM), potentially reducing its reliance on Microsoft’s AI services in the future.

• ByteDance was “secretly using” OpenAI’s technology to create its own LLM, a practice generally considered a faux pas in the AI world and a violation of OpenAI’s terms of service.
• OpenAI suspended ByteDance’s account to investigate a potential violation of its developer license, while ByteDance claimed it was using the technology “to a very limited extent” to help create its own models.

Microsoft’s AI investments and financials: Microsoft has made significant investments in OpenAI, positioning itself as the company’s exclusive cloud provider and building a supercomputer to power ChatGPT.

• Microsoft has spent “several hundreds of millions of dollars” on the supercomputer, showcasing its commitment to advancing AI technologies.
• In its Q4 2024 earnings report, Microsoft revealed Azure revenue growth of 29 percent, slightly missing its projected growth of 30 to 31 percent from the previous earnings release.
• For Q1 2025, Microsoft anticipates Azure revenue growth of around 28–29 percent, indicating a continued strong performance of its cloud services.

Analyzing deeper: TikTok’s reliance on Microsoft’s AI services and ByteDance’s efforts to develop its own LLM highlight the complex dynamics within the AI industry. As companies strive to leverage advanced AI technologies, they often rely on partnerships with leading AI providers like OpenAI and Microsoft. However, the desire to reduce dependence on external providers and gain a competitive edge drives some companies to develop their own AI capabilities, potentially reshaping the competitive landscape in the long run. The financial implications for Microsoft are significant, as AI services become an increasingly important part of its cloud business, contributing to its overall growth and profitability.