openai: close partnership between Microsoft and OpenAI shows signs of wear

Microsoft had already pumped $13 billion into OpenAI, and Nadella was initially keen to keep the cash flowing. But after OpenAI’s board briefly removed Altman last November, Nadella and Microsoft reconsidered their decision, according to four people familiar with the conversations who spoke on condition of anonymity.

Over the next few months, Microsoft did not let up as OpenAI, which expects to lose $5 billion this year, continued to ask for more money and more computing power to build and run its artificial intelligence systems.

Altman once called OpenAI’s partnership with Microsoft “the best bromance in tech,” but ties between the companies have begun to deteriorate. Financial pressure on OpenAI, concerns about its stability and disagreements between employees of the two companies have strained their five-year partnership, according to interviews with 19 people familiar with the relationship between the companies.

That tension demonstrates a key challenge for AI startups: They depend on the world’s tech giants for money and computing power because those big companies control the massive cloud computing systems that small businesses need to develop AI.

No pairing shows this dynamic better than Microsoft and OpenAI, the creator of the ChatGPT chatbot. When OpenAI got its giant 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.

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“We are deeply grateful for our partnership with Microsoft; the large initial bet they made on us and the vast computing resources they provided have been essential to our research advances, greatly benefiting 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 future.” Over the past year, OpenAI has been trying to renegotiate the deal to help it secure more computing power and reduce crippling expenses, while Microsoft executives have become increasingly concerned that its AI work is too reliant on OpenAI. Nadella has said privately that Altman’s firing in November surprised and concerned him, according to five people with knowledge of his comments.

Microsoft has since begun to hedge its bet on OpenAI.

“We have continued to invest in OpenAI at many discrete points in the partnership,” Scott, Microsoft’s chief technology officer, said in a recent interview. “We are certainly the largest equity investor in them.”

But in March, Microsoft paid at least $650 million to hire most of the staff at Inflection, an OpenAI competitor. Former Inflection CEO and co-founder Mustafa Suleyman oversees a new group at Microsoft that is working to create consumer AI technologies based on OpenAI software. He is also the point person for Microsoft’s long-term effort to develop technologies that could replace what the company is getting from OpenAI, according to two people familiar with Microsoft’s plans.

“Microsoft could be left behind if it only uses OpenAI technologies,” said Gil Luria, an analyst at investment bank DA Davidson. “It’s a real race, and OpenAI may not win it.”

Some OpenAI executives and employees, including Altman, are angry that Suleyman is at Microsoft, according to five people familiar with the relationship between the two companies. Suleyman’s team is part of a group of Microsoft engineers who work directly with OpenAI employees. Dozens of Microsoft engineers work in OpenAI’s offices in San Francisco and use laptops provided by OpenAI that are configured to maintain the startup’s security protocols.

Some OpenAI staff members recently complained that Suleyman yelled at an OpenAI employee during a recent video call because he thought the startup wasn’t delivering new technology to Microsoft as quickly as it should, according to two people familiar with the call. Others were offended after Microsoft engineers downloaded important OpenAI software without following protocols the two companies had agreed upon, the people said.

(The New York Times sued OpenAI and Microsoft in December, alleging that they had infringed the Times’ copyright in training AI systems.)

After Microsoft withdrew from discussions about additional funding, OpenAI found itself in a bind. It needed more cash to maintain its operations and its executives were irritated by the exclusivity of the contract. Over the past year, the artificial intelligence company repeatedly tried to negotiate to reduce the cost and allow it to buy computing power from other companies, according to seven people familiar with the discussions.

In June, Microsoft agreed to an exception to the contract, six people with knowledge of the change said. That allowed OpenAI to sign a roughly $10 billion computing deal with Oracle for additional computing resources, according to two people familiar with the deal. Oracle provides computers equipped with chips suitable for creating artificial intelligence, while Microsoft provides the software that powers the hardware.

And in recent weeks, OpenAI and Microsoft negotiated a change to a future contract that reduces how much Microsoft will charge the smaller company for computing power, although the exact terms were unclear, according to a person familiar with the change.

As it looked for computing power alternatives, OpenAI also rushed to expand its number of investors, according to two people familiar with the company’s plan.

Part of the plan was to secure strategic investments from organizations that could bolster OpenAI’s prospects in ways that go beyond spending money. Those organizations included Apple, the chip maker NVIDIAand MGX, a technology investment firm controlled by the United Arab Emirates.

Altman and OpenAI had been discussing potential partnerships with Apple for years. In 2022, as OpenAI was developing the technologies that would power ChatGPT, Altman and Kevin Scott, Microsoft’s chief technology officer, met with Apple executives to explore ways the three companies could work together, according to two people familiar with the meeting. That meeting ultimately led to Apple agreeing to put ChatGPT on the iPhone earlier this year.

Nvidia was an important partner because it designed the computer chips that OpenAI needed to develop its artificial intelligence technologies. MGX was part of an ambitious OpenAI effort to build new computing data centers around the world.

Earlier this month, OpenAI closed a $6.6 billion funding round led by prosperous capitalwith additional participation from Nvidia, MGX and others. Apple did not invest, but Microsoft also participated in the financing round.

OpenAI expected to spend at least $5.4 billion on computing costs through the end of 2024, according to documents reviewed by The New York Times. That amount was expected to skyrocket over the next five years as OpenAI expands, rising to an estimated cost of $37.5 billion annually in computing by 2029, the documents show.

It’s unclear to what extent recent adjustments to the partnership between OpenAI and Microsoft will alter that trajectory, but Microsoft executives were happy with the changes, according to a person familiar with the company’s strategy. The tech giant can continue to benefit from OpenAI’s improved technologies, while the startup continues to pay it for substantial amounts of computing power.

Still, OpenAI employees complain that Microsoft does not provide enough computing power, according to three people familiar with the relationship. And some have complained that if another company beats it to the punch in creating AI that matches the human brain, Microsoft will be to blame because it hasn’t given OpenAI the computing power it needs, according to two people familiar with the complaints. .

Interestingly, that could be the key to getting out of your contract with Microsoft. The contract contains a clause that says that if OpenAI builds artificial general intelligence, or AGI (broadly speaking, a machine that matches the power of the human brain), Microsoft loses access to OpenAI’s technologies.

The clause was intended to ensure that a company like Microsoft would not misuse this machine of the future, but today OpenAI executives see it as a path to a better contract, according to a person familiar with the company’s negotiations. Under the terms of the contract, OpenAI’s board of directors could decide when AGI will arrive.

At an AI conference in Seattle this month, Microsoft didn’t spend much time discussing OpenAI. Asha Sharma, an executive who works on Microsoft’s artificial intelligence products, emphasized the independence and variety of the tech giant’s offerings.

“We definitely believe in offering options,” Sharma said.