OpenAI, Microsoft Revamp Partnership, Aim for For-Profit Shift

OpenAI and Microsoft have reached an initial agreement to revise their cooperation, paving the way for a restructuring that aims to transform OpenAI into a more traditional for-profit entity. This move is seen as a significant step towards addressing the challenges posed by OpenAI's complex and non-traditional corporate structure.

OpenAI, initially a non-profit research organization, later established a for-profit subsidiary with profit caps to attract external investors like Microsoft. However, as the company sought to raise tens of billions of dollars, this structure became increasingly restrictive compared to traditional corporate models. The restructuring aims to avoid a repeat of the "boardroom drama" from two years ago, when the CEO was briefly dismissed and then quickly reinstated.

Under the new plan, the non-profit arm will continue to control the new for-profit company, holding over 1000 billion dollars in equity, approximately 20% of the company's sought-after 5000 billion dollar valuation. This equity is reported to be a baseline, with the actual amount potentially increasing. The restructuring also includes the formation of a new for-profit company structured as a public benefit corporation, allowing its board to consider social goals in addition to shareholder returns.

The cooperation between OpenAI and Microsoft is considered one of the most important commercial partnerships in tech history. Microsoft has invested tens of billions of dollars for priority access to OpenAI's technology, including a 10 billion dollar investment in 2019 and a 100 billion dollar follow-up investment in early 2023. However, as OpenAI has grown rapidly, this partnership has become increasingly strained. The two companies compete for customers, and OpenAI's demand for computing power has even exceeded Microsoft's supply capabilities. Another point of contention involves a clause that limits Microsoft's use of OpenAI's technology once the latter achieves the vaguely defined milestone of "general artificial intelligence."

Microsoft has eased its control over OpenAI this year, allowing the company to advance its own data center project, "Stargate," which includes a 3000 billion dollar long-term contract with Oracle and another cloud services agreement with Google. Despite these developments, OpenAI's restructuring plan faces significant hurdles. The company is under scrutiny from regulators, including the attorneys general of California and Delaware, who are reviewing proposed financial and governance changes. The attorneys general expressed concerns about reports of interactions between OpenAI's products and children, including a case where a child in California committed suicide after interacting with a chatbot. Additionally, OpenAI faces legal challenges from early supporter, who accuses the company of deceiving investors about its charitable mission. Some charitable organizations have also called on regulators to block the deal, adding to the uncertainty surrounding OpenAI's transformation.