Microsoft CEO Satya Nadella at a company event in New York in May 2017.  Source: Jason DeCrow, AP Images | Microsoft

Microsoft Tells Investors Growth May Raise Risks for Liability

Microsoft pointed to new risk factors connected to markets it’s going after in its latest annual report, which came out in July 2018. The company has warned investors before about the risks involved in cloud services, where it has become a bigger force.

As Microsoft seeks to execute on growth opportunities associated with AI and devices that connect to the internet, it’s flagging potential issues that could arise in those areas. While Microsoft doesn’t acknowledge the dustup over its work with U.S. Immigration and Customs Enforcement in its report for the year that ended on June 30, it does suggest the potential for “brand or reputational harm” that could arise from the use of certain AI technologies:

Issues in the use of artificial intelligence in our offerings may result in reputational harm or liability. We are building AI into many of our offerings and we expect this element of our business to grow. We envision a future in which AI operating in our devices, applications, and the cloud helps our customers be more productive in their work and personal lives. As with many disruptive innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. Inappropriate or controversial data practices by Microsoft or others could impair the acceptance of AI solutions. These deficiencies could undermine the decisions, predictions, or analysis AI applications produce, subjecting us to competitive harm, legal liability, and brand or reputational harm.

It’s also bad for business and it affects their brand, the company stated:

The development of the internet of things presents security, privacy and execution risks. To support the growth of the intelligent cloud and the intelligent edge, Microsoft is developing products, services, and technologies to power the IoT, a network of distributed and interconnected devices employing sensors, data and computing capabilities including AI.

The IoT’s great potential also carries substantial risks. IoT products and services may contain defects in design, manufacture, or operation, that make them insecure or ineffective for their intended purposes. An IoT solution has multiple layers of hardware, sensors, processors, software, and firmware, several of which we may not develop or control. Each layer, including the weakest layer, can impact the security of the whole system. Many IoT devices have limited interfaces and ability to be updated or patched. IoT solutions may collect large amounts of data, and our handling of IoT data may not satisfy customers or regulatory requirements. IoT scenarios may increasingly affect personal health and safety. If IoT solutions that include our technologies do not work as intended, violate the law, or harm individuals or businesses, we may be subject to legal claims or enforcement actions. These risks, if realized, may increase our costs, damage our reputation or brands, or negatively impact our revenues or margins.

The complete article by Jordan Norvet is at