icon
icon
icon
icon
Upgrade
icon

Microsoft Leaves OpenAI Board As Antitrust Investigations Heat Up

AInvestWednesday, Jul 10, 2024 7:32 am ET
2min read

As global regulatory bodies are increasingly scrutinizing tech giants' investments in AI startups, Microsoft abruptly announced on Tuesday that it has relinquished its observer seat on the OpenAI board, and Apple's previous pursuit of a similar position is also expected to become a thing of the past...

It is reported that in a letter to OpenAI on Tuesday, Microsoft stated that the decision to exit the OpenAI board would take immediate effect.

Last year, OpenAI CEO Sam Altman was abruptly fired by the board, only to be reinstated days later, plunging OpenAI into chaos. The failed board coup severely threatened OpenAI's valuation and jeopardized Microsoft's multi-billion-dollar investment in the company. Since then, Microsoft has held a non-voting observer seat on the restructured OpenAI board.

Microsoft's Deputy General Counsel Keith Dolliver wrote in a letter to OpenAI late Tuesday, Over the past eight months we have witnessed significant progress by the newly formed board and are confident in the company's direction. Given all of this we no longer believe our limited role as an observer is necessary.'

In response, an OpenAI spokesperson said, We're grateful to Microsoft for voicing confidence in the Board and the direction of the company, and we look forward to continuing our successful partnership.

The OpenAI spokesperson stated that OpenAI will hold regular meetings with partners and major investors such as Microsoft, Apple, Thrive Capital, and Khosla Ventures, as part of OpenAI's new way of providing information and engaging with key strategic partners.

It is worth mentioning that as part of the milestone agreement announced last month, Apple had also sought an observer seat on the OpenAI board to further strengthen the ties between the two companies. However, according to a person directly familiar with the matter, Apple will no longer pursue this. Apple declined to comment.

Generally, having an observer seat means that the aforementioned parties can attend OpenAI's board meetings and access relevant confidential information, but they do not have voting rights on matters such as board elections.

Why exit?

Analysts say that Microsoft's latest announcement comes as antitrust agencies in the EU and the US are closely examining the cooperation between Microsoft and OpenAI.

US federal regulators have recently reached an agreement to allow antitrust investigations into Microsoft, OpenAI, and Nvidia regarding their dominant positions in the AI industry, scrutinizing the influence of these powerful companies in AI and whether they have harmed competition through abuse and illegal actions.

Microsoft's partnership with OpenAI is crucial to OpenAI's success. The startup relies on the tens of billions of dollars in computing power and cloud storage support provided by Microsoft. Microsoft CEO Satya Nadella was also a key supporter behind Altman during the turmoil on the OpenAI board last November.

Microsoft's substantial investment in OpenAI has also placed it at the forefront of the global generative AI race. The company said in April that it is striving to keep up with the rapidly growing demand in the AI field, and AI services have helped accelerate sales growth on its Azure cloud computing platform over the past three quarters.

Microsoft does not have traditional equity in OpenAI. However, it has the right to share in the profits generated by OpenAI's business, up to a certain limit. According to OpenAI's website, it remains a fully independent company managed by the OpenAI non-profit organization.

Currently, OpenAI's eight-member board includes Altman, former US Treasury Secretary Larry Summers, and Instacart CEO Fidji Simo. The board chairman is former Salesforce co-CEO and co-founder of AI startup Sierra, Bret Taylor.

$MSFT(MSFT)

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.