Of all the debates raging about the potential downsides of AI, there is one worry causing the most hand-wringing among AI enthusiasts in Silicon Valley. Their fear is that the giant AI labs that sell proprietary models are somehow acting like Trojan horses.
The concern is that, as startups and enterprises use AI models from labs like OpenAI and Anthropic, the labs gain ever-increasing access to those companies’ most sensitive business information. The model makers can then use that knowledge for themselves, potentially becoming competitors to their own customers. Those issuing such warnings range from VCs like Jason Calacanis to Palantir CEO Alex Karp.
Now, in a surprising blog post published on Monday, Microsoft CEO Satya Nadella has joined this crowd. Nadella warns that AI users (the “buyers” as he calls them) are paying twice. They knowingly spend for AI token usage but they also, obliviously, hand over valuable data in the process.
“You essentially pay for intelligence twice, once with money, and again with something even more valuable: the proprietary knowledge you must reveal to make that intelligence useful. The better you want the model to perform, the more of that knowledge you have to feed it!” he writes.
Most dangerously, enterprises are literally teaching the models about the nuances of their businesses, he argues.
“Models learn from ‘exhaust,’ the prompts people write, the tools agents use, and especially the corrections people make when the model is wrong. Every correction is distilled into institutional know-how,” he writes.
This is “the kind of knowledge a competitor could never buy,” and yet enterprises are handing it over.
Nadella argues that if AI companies get to freely scrape the internet to train their models, it’s only fair that enterprises get to study — or “distill” — those models in return. “Distillation” is the practice of using a model’s own outputs to learn how it works and to train a new, often cheaper, model based on those insights. In February, Anthropic accused Chinese open so …