OpenAI gets Microsoft's blessing to transition into a for-profit company
What's the story
Microsoft and OpenAI have signed a non-binding agreement to change their relationship. The deal would permit OpenAI to restructure itself into a for-profit company. However, the details of these new commercial arrangements are yet to be disclosed. The two tech giants are now working toward finalizing a definitive agreement, marking a major step in their ongoing partnership.
Restructuring details
OpenAI's restructuring plans
OpenAI has plans to restructure its existing non-profit entity into a public benefit corporation. The non-profit entity would hold a $100 billion stake in the public benefit corporation, giving it authority over its decisions. The move comes after Microsoft's massive investments in OpenAI, including a $1 billion investment in 2019 and another $10 billion at the start of 2023.
Rights and projects
Microsoft's previous exclusive rights
Under their previous deal, Microsoft had exclusive rights to sell OpenAI's software tools via its Azure cloud computing platform. The tech giant was also given preferred access to the start-up's technology. However, this year, Microsoft relaxed its grip on these rights, permitting OpenAI to pursue its own data center project called Stargate.
Growth strategy
Continued access to OpenAI's technology
As OpenAI's revenue grows into billions, the company is looking for a more conventional corporate structure. It also seeks partnerships with other cloud providers to expand its sales and secure the computing capacity needed to meet the demand. Despite these developments, Microsoft seeks continued access to OpenAI's technology even if it declares its models have reached humanlike intelligence, a milestone that would end their current partnership under existing terms.
Funding and approval
Regulatory hurdles and funding risks
Under current terms, OpenAI's nonprofit arm will receive over $100 billion, about 20% of the $500 billion valuation it is seeking in private markets. This would make it one of the most well-funded non-profits. However, there are still regulatory hurdles to overcome as Attorneys General in California and Delaware have to approve OpenAI's new structure. The company hopes to finish this conversion by year's end or risk losing billions of dollars in funding tied to that timeline.