Microsoft CEO Satya Nadella warns of ‘Reverse Information Paradox’ facing businesses in AI Age

NEW DELHI: Microsoft chairman and CEO Satya Nadella explained that enterprises need a real trust boundary for their human capital and token capital to compound, as a company should be able to use a model without giving up the knowledge that makes it unique. This “reverse information paradox” is the central challenge that businesses need to confront in the age of intelligence.

Nadella, on X, stated that while Nobel Prize-winning economist Kenneth Arrow described a paradox where a seller risks giving away knowledge to sell it, artificial intelligence creates the opposite problem.

“In the AI age, the buyer risks giving away knowledge, just in order to use what they bought,” Nadella said. “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!…..That is what I think of as the Reverse Information Paradox.”

https://t.co/xv6csf1SbV

— Satya Nadella (@satyanadella) July 12, 2026

He noted that over time, the information asymmetry becomes increasingly skewed because the seller learns more about the buyer, while the buyer learns very little about what the seller learns in return. According to Nadella, resolving this issue requires more than standard data protection. Models learn continuously from “exhaust,” which includes user prompts, agent tools, and corrections made when a model is wrong.

“Every correction is distilled into institutional know-how,” Nadella stated. “It’s the kind of knowledge a competitor could never buy, and the kind that leaks almost imperceptibly: trace by trace, correction by correction, eval by eval. In consuming intelligence, you are creating intelligence. And what you create should belong to you.”

He pointed out the irony in the current status quo, where model providers utilize fair use rights to train on public data but then impose restrictive terms on distillation and reserve the right to learn from customer usage. Nadella stated that if learning flows in only one direction, economic value converges toward the infrastructure owners rather than the knowledge creators. Consequently, distributing learning infrastructure to every firm is imperative so they can control their own learning loop.

To secure this boundary, Nadella outlined that enterprises must focus on control, capability, choice, cost, and compounding. This involves creating private evaluations, retaining ownership of organizational memory, building proprietary learning environments within a tenant boundary, and decoupling the orchestration layer from any single model to ensure long-term cost efficiency and value compounding.

Quoting Palantir CEO Alex Karp, Nadella highlighted the growing demand among technical customers for absolute autonomy over their proprietary systems. “What the technical customers want is control over their compute, their models, their data stack, and their alpha,” Nadella quoted Karp. “They want to know they own the means of production, and it’s not being transferred to someone else.” (ANI)