Microsoft is introducing smaller AI models called Phi-3, which can fit on smartphones and regular computer chips, making them more affordable. This shift towards smaller AI systems aims to make AI technology more accessible to a wider range of customers. While smaller systems may be less accurate, Microsoft believes customers will be willing to compromise on performance for affordability. This approach also allows online advertisers to benefit from better targeting for ads. Microsoft is open-sourcing its Phi-3 models, encouraging collaboration and adoption of the technology. The smaller models achieved their size by refining training data and learning from high-quality text.