To stay competitive in the global technological race, Japan must merge its defence and civilian innovation ecosystems, which involve diverse stakeholders. In September 2024, Japan’s Ministry of Defense and Ministry of Economy, Trade and Industry unveiled the concept of a “dual-use startup ecosystem.” This initiative seeks to integrate startups into research and development (R&D) to meet the technological demands of defence equipment.

Strengthening Defence Innovation

Prior to the announcement, the government identified approximately 200 startups in July 2023, outlining plans to support these companies with defence-related equipment and financial assistance to ease their entry into the market. The startups specialize in advanced fields such as drones, cyber defence, satellite communications, and electromagnetic wave technologies.

Leading this initiative is the Ministry of Defense’s Acquisition, Technology, and Logistics Agency through its newly established Defense Innovation Science and Technology Institute (October 2024). The aim is to efficiently incorporate civilian technologies into defence equipment, aligning with global trends where private-sector innovation plays a growing role in defence development. The model draws inspiration from the U.S. Defense Advanced Research Projects Agency (DARPA) and the Defense Innovation Unit, which rapidly integrate private-sector advancements into defence projects.

Historical Roots and Persistent Challenges

Japan’s push for dual-use technologies is not entirely new. Efforts began with the 2013 National Security Strategy and the 2014 Strategy on Defense Production and Technological Bases, emphasizing public-private partnerships. These policies responded to challenges like globalized supply chains, Japan’s deteriorating security environment, the shrinking defence industry, and the need for technological cooperation with allies.

However, gaps between policy and implementation have hindered progress. A major issue is the low profitability of the defence industry, which has driven many private companies out of the sector. Reform efforts must offer stronger incentives for startups to participate. While increased defence spending has benefited traditional firms, smaller companies and startups face uncertain gains.

Another obstacle is the private sector’s cautious stance on defence R&D, rooted in Japan’s post-war anti-militarist norms. Many academic and industrial players perceive military involvement as a reputational risk in the predominantly civilian-focused business landscape.

For instance, the Ministry of Defense’s 2015 research funding initiative faced strong opposition from the academic community, including the Science Council of Japan, which criticized it for potentially restricting free scientific inquiry. This resistance has limited the impact of defence-related reforms, and startups entering the sector may encounter similar challenges.

Emerging Opportunities in a Changing Context

Despite these hurdles, Japan’s new dual-use startup ecosystem reflects an evolving political and social landscape. Since the 2010s, Japan’s national security policies have shifted to address growing security threats and fiscal constraints. Public opinion has gradually become more open to pragmatic national security measures, although resistance persists in some sectors.

Startups, particularly those led by younger entrepreneurs who are less tied to traditional business norms, are poised to play a pivotal role in this policy’s success.

Economic Security as a Catalyst

Economic security policies are further driving changes in Japan’s defence innovation ecosystem. The 2022 Economic Security Promotion Act has marked the beginning of “economic securitisation,” incorporating critical and emerging technologies into national policy. Initiatives like the “Key and Advanced Technology R&D through Cross Community Collaboration Program” have expanded R&D budgets, with applications spanning both civilian and military domains under the label of “multi-use” technologies.

By framing defence-related R&D as part of economic security, the government is addressing concerns within Japan’s political culture. This approach may reduce normative barriers for companies and universities to engage in defence-related activities.

A Defining Moment for Japan’s Innovation Ecosystem

As economic securitisation gains traction, Japan faces an opportunity to establish a robust defence innovation ecosystem. However, this moment also demands tough decisions from the private sector about their involvement in defence projects. Balancing commercial interests with normative considerations will shape the future of Japan’s defence and civilian innovation integration.

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.