Microsoft, which invested $13 billion in OpenAI, now hindering OpenAI
The agreement between the two companies, valid until 2030, is highly unfavorable to OpenAI
In November 2023, during OpenAI’s first developer conference in San Francisco, USA, Microsoft CEO Satya Nadella’s remarks were attentively listened to by OpenAI CEO Sam Altman. (AP News)
The conflict between OpenAI and Microsoft (MS) is intensifying. The six-year relationship that started in 2019 between OpenAI and MS is now facing tensions due to changes in OpenAI’s nonprofit organization’s control and the escalating AI competition between the two companies. MS has invested a total of $13 billion in OpenAI and holds a 49% stake, but OpenAI seeks to free itself from MS’s control.
Recent discussions among OpenAI executives about potentially reporting Microsoft’s anti-competitive behavior to U.S. competition authorities have gained seriousness. The U.S. Federal Trade Commission (FTC) is currently conducting a broad antitrust investigation into MS, and OpenAI is considering impacting MS by reporting its anti-competitive actions.
OpenAI’s move to consider such a step is due to MS’s lukewarm attitude towards OpenAI’s public benefit corporation restructuring. For OpenAI to raise additional funds and pursue an IPO (Initial Public Offering), transitioning to a public benefit corporation is essential. However, the restructuring process requires MS’s approval, given its stake in OpenAI. MS has emerged as the main opposition to OpenAI’s structural overhaul because it aims to maintain control over OpenAI’s AI products and computing. Additionally, MS is reportedly demanding a larger ownership stake than OpenAI is willing to offer. These reasons are slowing down OpenAI’s transition to a public benefit corporation, which risks missing out on a $20 billion funding opportunity if not completed by the end of the year.
Another background to their conflict is the two companies now competing in nearly every AI sector. MS initially helped OpenAI grow rapidly through its investment. Over time, both companies started competing in almost all AI fields. Last year, MS recruited a significant number of employees from OpenAI’s competitor, InflectionAI.
The recent acquisition of coding startup Windsurf by OpenAI for $3 billion has further exacerbated the conflict. Once the acquisition is finalized, MS’s AI coding product “GitHub Copilot” will inevitably face competition from OpenAI. Although MS has access to all OpenAI’s intellectual property (IP), OpenAI doesn’t want MS to access Windsurf’s IP. Under the current agreement, MS holds exclusive rights to sell OpenAI’s software tools via its Azure cloud and has priority access to OpenAI’s technologies. The contract, valid until 2030, outlines the scope of MS’s access to OpenAI’s AI models and services, along with profit-sharing rights.
According to the Wall Street Journal, “The lingering dissatisfaction of OpenAI toward MS continues to escalate, centered around the stake MS will hold after OpenAI transitions to a public benefit corporation,” indicating that “the conflict between OpenAI and MS has reached its peak.”