Last fall, OpenAI CEO Sam Altman asked his Microsoft colleague Satya Nadella whether the tech giant would invest billions of dollars in the startup.
Microsoft has already committed $13 billion to OpenAI, and Nadella was initially positive about keeping the money flowing. But Nadella and Microsoft had second thoughts after OpenAI’s board temporarily fired Altman last November, according to four people familiar with the talks who spoke on condition of anonymity.
Microsoft will not be daunted in the coming months as OpenAI, which expects to lose $5 billion this year, continues to demand more funding and more computing power to build and run its AI systems. Ta.
Altman once called the partnership between OpenAI and Microsoft “the greatest bromance in tech,” but the relationship between the two companies has begun to fray. Financial pressures on OpenAI, concerns about its stability and disagreements between employees at both companies have strained the five-year partnership, according to interviews with 19 people familiar with the relationship between the two companies. It became clear.
This tension presents a significant challenge for AI startups. They rely on the world’s tech giants for funding and computing power. That’s because these large companies manage the massive cloud computing systems that small businesses need to develop AI.
No combination better represents this dynamic than Microsoft and OpenAI, makers of the ChatGPT chatbot. When OpenAI received a huge investment from Microsoft, it agreed to an exclusive deal to buy computing power from Microsoft and work closely with the tech giant on new AI.
“We are deeply grateful for our partnership with Microsoft. The early big bets they made on us and the vast computing resources they provided have been critical to the advancement of our research. , with significant benefits for both companies,” Altman said in a statement Thursday. “We are excited and committed to pursuing our shared vision and achieving even greater things together in the distant future.”
OpenAI has been trying to renegotiate its contract over the last year to secure more computing power and save significant costs, but Microsoft executives are concerned that their AI operations are too reliant on OpenAI. I am becoming increasingly concerned. Mr. Nadella privately said he was shocked and concerned by Mr. Altman’s firing in November, according to five people with knowledge of his comments.
Since then, Microsoft has started de-risking OpenAI.
“We have continued to invest in OpenAI at various points in our partnership,” Microsoft Chief Technology Officer Kevin Scott said in a recent interview. “We are certainly the largest capital investor in them.”
But in March, Microsoft paid at least $650 million to hire most of its staff from OpenAI competitor Inflection. Mustafa Suleiman, former CEO and co-founder of Inflection, is overseeing a new Microsoft group working to build consumer-grade AI technology based on OpenAI software. He is also a key figure in Microsoft’s long-term efforts to build technology to replace what the company is getting from OpenAI, according to two people familiar with the company’s plans.
“Microsoft could be left behind if it only uses OpenAI technology,” said Gil Luria, an analyst at investment bank DA Davidson. “This is a real competition, and OpenAI may not be able to win it.”
Some OpenAI executives and employees, including Mr. Altman, are upset that Mr. Suleiman is at Microsoft, according to five people familiar with the relationship between the two companies. Suleiman’s team is part of a group of Microsoft engineers who work directly with OpenAI employees. Dozens of Microsoft engineers work out of OpenAI’s offices in San Francisco, using laptops configured to uphold the startup’s security protocols provided by OpenAI.
Some OpenAI staffers recently told Mr. Suleiman during a recent video call that they thought the startup wasn’t delivering new technology to Microsoft quickly enough, according to two people familiar with the call. He reportedly complained that he yelled at her. Some people were upset that Microsoft engineers downloaded critical OpenAI software without following protocols agreed to by both companies, the people said.
(The New York Times sued OpenAI and Microsoft in December for allegedly violating the Times’ copyright in training its AI systems.)
OpenAI found itself in trouble after Microsoft withdrew from discussions about raising additional funding. It needed more cash to stay afloat, and executives resented the exclusivity of the deal. Over the past year, AI companies have repeatedly tried to negotiate lower costs and terms to buy computing power from other companies, according to seven people familiar with the discussions.
Microsoft agreed to an exception to the deal in June, according to six people familiar with the change. This allows OpenAI to sign a roughly $10 billion computing contract with Oracle for additional computing resources, according to two people familiar with the deal. Oracle provides computers with chips suitable for building AI, and Microsoft provides the software that powers the hardware.
And OpenAI and Microsoft have negotiated future contact changes in recent weeks that would reduce the amount Microsoft charges small businesses for their computing power, according to people familiar with the changes. However, the exact conditions were unclear.
While OpenAI explores alternative ways to power computers, it is also eager to expand its investor base, according to two people familiar with the company’s plans.
Part of the plan was to secure strategic investment from organizations that could advance OpenAI’s prospects in ways that go beyond throwing money around. These organizations included Apple, chipmaker Nvidia, and UAE-controlled technology investment firm MGX.
Altman and OpenAI have been discussing a potential partnership with Apple for years. In 2022, while OpenAI was developing the technology to power ChatGPT, Altman and Scott met with Apple executives to explore ways for the three companies to work together, according to two people familiar with the meeting. That meeting ultimately led to Apple agreeing to include ChatGPT on the iPhone earlier this year.
Nvidia was a key partner because OpenAI designed the computer chips needed to build the AI technology. MGX was part of an ambitious OpenAI effort to build new computer data centers around the world.
Earlier this month, OpenAI closed a $6.6 billion funding round led by Thrive Capital with additional participation from Nvidia, MGX, and more. Microsoft also participated in the funding round, although Apple did not invest.
OpenAI expects to spend at least $5.4 billion on computing costs by the end of 2024, according to documents reviewed by The New York Times. That amount will skyrocket over the next five years as OpenAI expands, with annual computing costs expected to jump to an estimated $37.5 billion by 2029, documents show.
It’s unclear how much recent tweaks to OpenAI’s partnership with Microsoft will change its trajectory, but Microsoft executives were happy with the changes, according to people familiar with the company’s strategy. Tech giants will continue to benefit from OpenAI’s technology improvements, while startups will continue to pay tech giants for significant amounts of computing power.
Still, OpenAI employees are frustrated that Microsoft isn’t providing enough computing power, three people familiar with the matter said. Other complaints say that if other companies win in developing AI that matches the human brain, Microsoft will be held responsible for not giving OpenAI the computing power it needs, according to two people familiar with the complaints.
Oddly enough, that may be the key to getting out of the deal with Microsoft. The deal includes a clause that says if OpenAI builds artificial general intelligence (AGI, a machine that roughly matches the capabilities of the human brain), Microsoft will no longer have access to OpenAI’s technology.
The clause was intended to ensure that companies like Microsoft wouldn’t exploit the futuristic machines, but OpenAI executives are now trying to change it into a better deal, according to people familiar with the company’s negotiations. It is said that it is regarded as the path of Based on the terms of the agreement, the OpenAI Board may decide when AGI arrives.
At its AI conference in Seattle this month, Microsoft didn’t spend much time discussing OpenAI. Asha Sharma, Microsoft’s executive in charge of AI products, emphasized the independence and diversity of the tech giant’s products.
“We strongly believe in providing choice,” Sharma said.
Karen Weise and Tripp Mickle contributed reporting.
