Microsoft unveils $2.5B ‘Frontier Company’ to embed AI engineers inside customers

Microsoft is launching a new AI “company.” It won’t be a separate legal entity, and most of its 6,000 people already work at Microsoft. But the $2.5 billion behind it is real, and the stakes are big, given how many of its AI partners and rivals are racing to do basically the same thing. 

The tech giant on Thursday announced “The Microsoft Frontier Company,” which will embed engineers inside customers to build and run AI systems. It will be led by Rodrigo Kede Lima, a longtime Microsoft sales and enterprise leader, most recently president of Microsoft Asia.

This practice is known in the industry as forward-deployed engineering, in which a company sends its own technical employees to work inside a customer’s operations to design, build, deploy and operate AI systems on-site rather than selling a tool and walking away. 

The model was pioneered two decades ago by Palantir, but in recent months the approach has become the hot new thing in enterprise AI. Amazon committed $1 billion to its own forward-deployed engineering initiative just two days ago. (Some inside Microsoft suspect that its rival may have caught wind of what it was planning and moved to announce first.) 

Anthropic and OpenAI launched rival ventures in May to put engineers inside enterprise customers. Unlike Microsoft’s initiative, the OpenAI Deployment Company, as the ChatGPT maker’s venture is known, is an actual standalone entity — majority-owned by OpenAI but backed by more than $4 billion from a partnership led by the private-equity firm TPG. 

Similarly, Anthropic teamed with Goldman Sachs, Blackstone and Hellman & Friedman on a $1.5 billion venture — not yet named — to embed engineers inside mid-sized companies, starting with the investment firms’ own portfolio businesses.

Microsoft is attempting to one-up them all. 

“This goes beyond what has been labeled as Forward Deployed Engineering (FDE) and will be the largest, most capable, outcome-driven engineering organization in the industry,” wrote Judson Althoff, CEO of Microsoft’s commercial business, in a post announcing the new initiative Thursday morning.

Responding to questions from GeekWire, a Microsoft spokesperson called the new initiative “a purpose-built company with its own leadership and financial accountability” but stopped short of calling it a separate legal entity or standalone company.

The spokesperson said the organization “brings together more than 6,000 industry, engineering and AI professionals, drawn primarily from Microsoft’s existing engineering and forward-deployed teams,” noting that it will “grow through a combination of internal talent and external hiring across engineering, AI, and industry roles.”  

Separately, some consulting roles are among those expected to be impacted by the round of layoffs anticipated next week.

Microsoft wouldn’t say whether the $2.5 billion is new spending or repurposed from existing budgets, or over what period it’s being spent. The company also hasn’t yet spelled out what the new organization means for the future of its existing consulting and services units.

Across the industry, this is happening now because the payoff from AI has proven harder to capture than many companies expected. Businesses across the economy have adopted tools like ChatGPT, Claude, Gemini and Copilot, only to find that impressive demos don’t automatically translate into results. The technology is powerful, but deploying it can be difficult inside a real company, with its own data, rules and entrenched ways of working.

So the AI providers have started sending their own engineers to work inside those companies and do it for them, figuring out where the AI can actually help, then building it into the daily work. 

“Having the model alone doesn’t change your workflows or how you operate,” said Marc Nachmann, Goldman Sachs’ global head of asset and wealth management, in an interview with CNBC about the Anthropic partnership. “You need people who can combine the technology with what’s actually happening in the business and implement those changes.” 

The big AI providers have multiple reasons to do this. Each of them wants to get more businesses using its AI platform at higher volumes. All of them are looking to drive long-term demand for the AI capacity they’re collectively spending hundreds of billions of dollars to build.

Another big reason: AI models are becoming commodities, getting cheaper and more similar by the month. The big money for the likes of Microsoft is in selling the services needed to make AI pay off inside a company, which is a far bigger market than just selling the models themselves.

Microsoft is pitching privacy and trust as a selling point. Its promise is that a customer’s data and hard-won knowledge stay the customer’s alone. Microsoft says it won’t feed them into training its AI models in ways that would hand the same advantages to the customer’s rivals. 

It’s also promising choice: customers can run whichever AI model fits the job, from OpenAI, Anthropic, Microsoft, or open-source providers, not locked into using one.

Microsoft CEO Satya Nadella has argued that a company should be able to exchange one AI model for another without losing all the institutional knowledge it has built up. 

That’s his test, as he put it, for whether a business still controls its own future.

“The last thing any of us want is a world where every company across every sector is ceding value to a few models that eat everything they see,” Nadella wrote in a June 14 essay. “If all the value is accrued by only a few models, the political economy will simply not tolerate it. There is no societal permission for an AI future that hollows out entire industries.”

Whether that vision of swappable AI models becomes a reality remains to be seen. There’s actually a risk for customers that the opposite will happen in the forward deployed engineering approach. Even if they can theoretically swap in a competitor’s AI model, working with Microsoft’s engineers means their systems naturally end up running on Microsoft’s cloud platform and related technologies, making it very difficult to jump ship.

It’s also not clear how new all of this really is for the company. Microsoft already runs a large in-house delivery arm — Industry Solutions Delivery, the group that absorbed what used to be called Microsoft Consulting Services — with thousands of consultants and engineers building and deploying technology inside customer organizations. 

Microsoft also has programs like FastTrack to help customers roll out its software, and over the past year it has been rolling out “forward-deployed engineering” teams with partners, including a dedicated practice with Accenture and a $1 billion, five-year alliance with EY.

So ultimately the Microsoft Frontier Company is less a new company than a new push behind work the actual company was already doing, albeit bigger and better-branded than before.