TLDR
- Microsoft and OpenAI signed a non-binding deal allowing OpenAI to restructure into a for-profit company
- OpenAI seeks $500 billion valuation with its nonprofit arm receiving over $100 billion (20% stake)
- Microsoft invested $11 billion total in OpenAI since 2019 and wants continued access to AI technology
- OpenAI plans to complete restructuring by year-end or risk losing billions in funding
- Deal allows OpenAI to work with other cloud providers like Oracle and Google beyond Microsoft
Microsoft and OpenAI announced a non-binding agreement Thursday that clears the path for OpenAI to become a for-profit company. The deal represents a new chapter in their partnership that has powered the ChatGPT boom.
The companies did not share specific details about their new commercial terms. Both sides are working to complete a final agreement in the coming months.
OpenAI has been in talks with Microsoft for months about changing its structure. The AI company wants to raise money under a standard corporate setup and eventually go public.
Microsoft first invested $1 billion in OpenAI in 2019. The tech giant added another $10 billion investment in early 2023.
Under their previous deal, Microsoft had exclusive rights to sell OpenAI’s tools through its Azure cloud platform. The company also had first access to new OpenAI technology.
Microsoft was originally OpenAI’s only computing provider. This year, the company relaxed those terms to let OpenAI build its own data centers.
OpenAI Expands Cloud Partnerships
OpenAI signed $300 billion in contracts with Oracle for its Stargate data center project. The company also made a separate cloud deal with Google.
As OpenAI’s revenue reaches billions of dollars, it wants more standard business partnerships. The company needs access to more computing power to meet growing demand.
OpenAI is seeking a $500 billion valuation in private markets. Under the new structure, its nonprofit division would receive more than $100 billion.
This would give the nonprofit about 20% of the company’s total value. Chairman Bret Taylor said this would make it one of the world’s largest nonprofits.
The companies have not revealed how much of OpenAI Microsoft will own after restructuring. They also have not said if Microsoft will keep exclusive access to the latest AI models.
Regulatory Approval Still Needed
Microsoft wants continued access to OpenAI’s technology even after major milestones. Under current terms, the partnership would end if OpenAI achieves human-level AI.
OpenAI must get approval from attorneys general in California and Delaware to change its structure. The company hopes to finish the conversion by the end of 2024.
Missing this timeline could cost OpenAI billions in funding commitments tied to the restructuring deadline. Several investors have made their funding contingent on the corporate change.
Microsoft and OpenAI now compete in some areas including chatbots and business AI tools. Microsoft has also been developing its own AI models to reduce dependence on OpenAI.
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