Microsoft is expanding its flagship AI product, Microsoft 365 Copilot, by integrating both internal and third-party AI models to diversify beyond its reliance on OpenAI’s technology and reduce operational costs, according to sources familiar with the matter.

This marks a shift for Microsoft, a major investor in OpenAI, which previously highlighted its exclusive access to OpenAI’s models as a key advantage. When Microsoft introduced 365 Copilot in March 2023, its use of OpenAI’s GPT-4 model was a primary selling point.

The company now seeks to reduce its dependence on OpenAI due to concerns about cost and performance for enterprise users, the sources said. A Microsoft spokesperson confirmed that OpenAI remains a key partner for advanced AI models, but Microsoft also customizes OpenAI’s models as part of their agreement.

“We incorporate various models from OpenAI and Microsoft depending on the product and experience,” Microsoft stated. OpenAI declined to comment.

Microsoft is training its own smaller models, including the latest Phi-4, and customizing open-weight models to make 365 Copilot faster and more cost-effective. These efforts aim to lower operational expenses and potentially reduce costs for customers, sources said.

Microsoft’s leadership, including CEO Satya Nadella, is closely monitoring these developments.

This strategy aligns with changes in other Microsoft units, such as GitHub, which added models from Anthropic and Google in October alongside OpenAI’s GPT-4. Similarly, its consumer chatbot Copilot now integrates both in-house and OpenAI models.

Microsoft 365 Copilot, an AI assistant for enterprise applications like Word and PowerPoint, is still proving its value to businesses. While adoption among Fortune 500 companies has reached 70%, many enterprises remain in the pilot phase, according to Gartner. Pricing and utility have been cited as potential hurdles.

Despite these challenges, adoption is accelerating. Analysts at BNP Paribas Exane predict that Microsoft will sell 365 Copilot to over 10 million paid users this year. In a November blog post, Microsoft highlighted its growing traction within large enterprises.

Perplexity AI, an artificial intelligence startup, has successfully secured $500 million in its latest funding round, raising its valuation to $9 billion, as reported by Bloomberg. This financing, led by institutional venture partners, was completed in December 2024.

The company’s valuation has seen a meteoric rise, jumping from $1 billion in April 2024 to $3 billion by June 2024 after a strategic investment from SoftBank Group’s Vision Fund 2. The $9 billion valuation now includes the recent funding, underscoring Perplexity’s rapid expansion.

Founded in 2022, Perplexity AI provides real-time information through both free and paid versions of its search tool. The platform has grown to include additional features, such as searching internal files and offering finance-related insights like stock prices and company earnings data.

By March 2024, Perplexity had amassed over 15 million active users. The company also established revenue-sharing partnerships with major publishers like Time and Fortune after addressing earlier plagiarism concerns.

Supported by prominent investors, including Jeff Bezos and NVIDIA, Perplexity AI continues to enhance its technology. The recent acquisition of Carbon, a data connectivity startup, allows users to link apps like Notion and Google Docs directly to the platform.

In a statement, Perplexity outlined its vision: “Carbon will simplify the process for users to connect the data sources that matter to them, enabling Perplexity’s answer engine to integrate diverse information from internal databases, cloud storage, and document repositories. Rather than searching through multiple web pages, apps, or messages, Perplexity will conduct the research, delivering critical insights across sources as part of the answer.”

With fresh funding and strategic initiatives, Perplexity AI is well-positioned for continued growth in the competitive AI market.

Southeast Asia is rapidly positioning itself as an investment hotspot for AI giants like Nvidia and Microsoft, which are channeling billions into cloud services and data centers. However, the region’s young tech companies are struggling to harness this boom.

While global corporations plan to invest up to $60 billion in Southeast Asia, fueled by the region’s embrace of video streaming, online shopping, and generative AI, much of this capital bypasses local startups focused on artificial intelligence. Investors remain cautious about betting on unproven entities, and Southeast Asia has yet to establish itself as a hub for scalable, innovative AI firms.

So far in 2024, venture capital funding for Southeast Asia’s AI startups has amounted to just $1.7 billion—less than 9% of the $20 billion invested across the Asia-Pacific region, according to Preqin. Only 122 AI-related funding deals have been recorded in Southeast Asia, compared to 1,845 across the broader APAC region.

Challenges in Scaling AI Innovation

This funding gap underscores doubts about Southeast Asia’s ability to compete with AI leaders like the US and China. In 2024, the US attracted $68.5 billion in AI investments, while China secured $11 billion. Although Southeast Asia boasts over 2,000 AI startups—more than South Korea and nearing Japan’s numbers—the region’s cultural and economic diversity complicates efforts to scale innovations effectively.

“Southeast Asia’s diversity in language, culture, and infrastructure makes it challenging to create large, unified datasets, which are critical for scaling AI solutions,” said Jussi Salovaara, managing partner at Singapore-based VC firm Antler.

Additionally, the region lacks the infrastructure to support large-scale development of foundational AI models, hardware, and software engineering. This limitation deters investors seeking to capitalize on cutting-edge AI opportunities, according to Sang Han, a partner at East Ventures.

Structural and Financial Hurdles

The broader venture capital ecosystem in Southeast Asia faces significant challenges. Weak IPO markets and limited exit opportunities have stymied the region’s ability to replicate Silicon Valley’s private capital model. Research by Google, Temasek Holdings, and Bain & Company shows private funding in Southeast Asia is poised to hit record lows, as investors grow more selective and cautious amid rising costs.

Governments in the region have recognized the need for intervention. National AI frameworks are in place across the board, with Singapore leading efforts by providing funding to startups through state-backed investment vehicles. However, a lack of regional coordination hinders progress.

“Countries in Southeast Asia prioritize vastly different agendas—some focus on high-tech sectors, while others work to improve basic infrastructure,” said Kelvin Lee, co-founder of investment platform Alta. “This divergence makes it difficult to foster moonshot innovation on a regional scale.”

Opportunities for Growth

Despite these hurdles, Southeast Asia remains a region of untapped potential. Its digital economy continues to grow at double-digit rates in both revenue and profitability, driven by a rising middle class, increasing mobile and internet penetration, and relative insulation from US-China geopolitical tensions.

Experts see promise in early-stage AI opportunities, such as the collection and organization of big data. “Building core assets through big data management can create a competitive advantage for the region,” said Weisheng Neo, a partner at venture capital firm Qualgro.

Some success stories underscore this approach. Singapore-based Patsnap has spent nearly two decades amassing and organizing data for use in AI models, enabling clients like NASA, Tesla, and Disney to leverage its resources. The company now uses its datasets to develop sector-specific AI tools, including natural language processing.

Similarly, Indonesia’s Alpha JWC has collaborated with the Pijar Foundation to establish a sandbox that connects AI startups with large corporations, providing insights into real-world challenges and fostering talent development.

Collaboration as the Key to Progress

For Southeast Asia to capitalize on the AI boom, greater collaboration among stakeholders is essential. This includes governments, regulators, corporations, and consumers working together to build a robust ecosystem.

“Capital alone is not enough,” said Jefrey Joe, partner at Alpha JWC. “Success depends on fostering a cohesive ecosystem where every stakeholder plays a role.”

While challenges remain, the optimism within Southeast Asia’s startup ecosystem suggests there is still time to ride the AI wave—provided the region can bridge its gaps and harness its untapped potential.