Hey Jealousy
Multiple Authors
Not much new in this report by Deepa Seetharaman, Berber Jin, and Keach Hagey. The most notable thing may be that the two sides are apparently still bickering after they seemed to reach some sort of detente a few weeks back. Then again, when a marriage is strained,1 it's hard to un-strain it, I suppose. Especially when money is involved. Like, say, hundreds of billions of dollars.
That relationship has become strained. The CEOs are increasingly at odds over the computing power Microsoft provides to OpenAI, the access the startup gives the technology giant to its models and whether the Altman-led company’s AI systems will soon achieve humanlike intelligence, according to people familiar with their relationship. Microsoft CEO Satya Nadella has also made it a priority to beef up sales and usage of ChatGPT rival Copilot, and last year hired a rival of Altman’s who launched a secret effort to build models for Microsoft that would reduce its dependence on OpenAI.
Again, none of that is new. Three points here:
- The compute needs and access are clearly what led Microsoft to effectively outsource the new data center and additional cash needs to SoftBank and the "Stargate Project" consortium – a project which, by the way, started as a Microsoft + OpenAI project! And it's undoubtedly why we get a now weekly report of Microsoft "pulling back" from data center projects. It's not so much that they're pulling back, more than they're deciding not to call their various options on additional capacity, since it was undoubtedly put in place when they were still the sole provider of compute for OpenAI.
- The AGI question is something that has hung over the relationship since inception, as the original terms apparently put in place a way for OpenAI to eventually break off and focus solely on AGI while Microsoft got to keep the pre-AGI AI work already done. But a lot has changed in the few years since that structure was hashed out – notably, the fact that OpenAI now has a very real and fast growing business thanks to the success of ChatGPT. Microsoft undoubtedly thought they'd be the one with the hit AI product in the form of Bing, but they blew it. Meanwhile, Altman and team are clearly gearing up to declare "AGI" at some point in the not-too-distant future, but they also apparently now may have a way to do so without it impacting the Microsoft relationship, per earlier reports. So I think it's more the tension around that hit AI app...
- The internal rival at Microsoft is obviously Mustafa Suleyman, whom Microsoft hackquired to be their new "CEO" of AI and specifically to build AI products that would resonate with the masses. That clearly hasn't happened yet, despite a few attempts now to build a consumer version of Copilot in the image of Pi, the Inflection product Suleyman and his team had been building. Meanwhile, again, ChatGPT continues to soar. This undoubtedly annoys not only Suleyman, but Nadella as well, given the failure of his hedge (yes, put in motion after "The Blip" – the few day coup of Altman that Nadella himself had to fix behind the scenes).
The tensions seem to ebb and flow between these three elements (with a few other tangential things in the mix, such as when OpenAI cut the deal with Apple to have ChatGPT baked into iOS, which also led to an awkward board situation for a bit). But again, the first two seem largely resolved at this point – though, of course, with the 'Stargate Project' still being built out, all of OpenAI's compute needs are still being handled by Microsoft. The third seems to be some good old-fashioned jealousy, which is probably driving the flare-ups, and hence the new reports reviewing the old tensions, which I started writing about nearly a year ago at this point, wondering out loud, Will OpenAI Bite the Microsoft Hand That Feeds?:
Anyway, all of this underscores the whispers you can’t help but hear if you follow any of this: that OpenAI and Microsoft are increasingly at odds with one another. Yes, they’ll still say the right things in public, and even make the occasional public appearance in support of one another. But there are billions of reasons to do that, literally. At the same time, the more subtle signals point to partners at odds. And a rift growing between the two.
All of that leads to the obvious question: if OpenAI is about to bite the hand that feeds them? And what, if anything, Microsoft can do if bitten?
It’s a pretty strange state of affairs given that it was just six months ago that Satya Nadella seemingly moved heaven and Earth to get Altman back in place at OpenAI. But once the Inflection deal, sorry, totally not a deal, happened, it signaled a fairly significant change in the relationship. Most people you talk to think this was a huge mistake on Microsoft’s part. Not just pissing off Altman and OpenAI, but also betting on Mustafa Suleyman to lead their group — himself a divisive figure in his own right with questionable bonafides. But hey, at least they got access to Inflection’s massive NVIDIA cluster, right?
As for what's going on now, back to Seetharaman, Jin, and Hagey:
Microsoft can effectively block OpenAI’s effort to restructure into an independent for-profit company, according to people familiar with the matter. OpenAI could lose tens of billions of dollars if the conversion doesn’t happen by the end of this year. Microsoft hasn’t to date threatened to do so, a person familiar with the matter said.
Given the amount of money Microsoft has put in and their likely ownership stake here – if and when OpenAI converts into a for-profit entity – that's undoubtedly true. But why on Earth would they block such a move? Perhaps if they thought there was a way that they could exclusively use OpenAI's tech to power their products, but we're way beyond that now. If nothing else, Nadella had a fiduciary responsibility to ensure that Microsoft's value from their stake in OpenAI is maximized. It could be worth hundreds of billions of dollars eventually – it might already be. But that's only if the company is able to convert.
On the flip side:
OpenAI’s board, meanwhile, can trigger a clause in its contract that prevents Microsoft from accessing its most cutting-edge technology, people familiar with the matter said. OpenAI officials have raised the possibility of doing so over the past year, some of the people said.
This is probably the juiciest bit of the new reporting. It's also not surprising, undoubtedly stemming from that original contract, but the possibility of triggering such a clause is... interesting. Why? To stop Microsoft from copying their work? To stop them from even distilling it down into their own models? Are they worried about safety? Something else? Just a threat to make sure both sides recognize the "mutual assured destruction" aspect of their relationship?
Back to the AGI element of all this:
One key area of tension: OpenAI’s development of models with humanlike intelligence. The companies’ agreement gives OpenAI’s board the power to change its relationship with Microsoft once the startup successfully builds models with humanlike intelligence. Altman has said he is confident his team can build that functionality soon.
In closed-door negotiations, Microsoft negotiators have told OpenAI that the present technology is nowhere near that threshold, the people said. Nadella dismissed the idea of declaring such a milestone on a popular podcast in February, calling it “nonsensical benchmark hacking.”
Executives at OpenAI were taken aback, according to people familiar with the matter.
Again, this feels like old news. Clearly, in order for OpenAI to move forward with SoftBank, Oracle, and the others for the 'Stargate Project', Microsoft had to tweak some elements of their deal with OpenAI – which they did and announced at the same time. The most interesting element of that release was the inclusion of a very specific 2030 date, and it read as if that would now perhaps supersede any sort of AGI declaration in terms of when the contracts between the two sides may end.
This followed months of negotiations between the sides around that "prenup" and specifically with regard to the AGI question. But it's possible that one element was never fully resolved. And perhaps that explains the notion of Microsoft potentially holding up the for-profit shift (and OpenAI's countermeasure to sever technology ties for other reasons).
But that's all just speculation. The bickering clearly continues between these two and again, that's no real surprise given the money and stakes involved. How much does Microsoft wish they could have just outright acquired OpenAI right now? It would have solved all their problems. They're nice problems to have in a way, but still very much problems. Especially when your stock has been riding high on your AI work – and that OpenAI relationship in particular.
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 Incidentally, a remake of The War of the Roses is coming out this summer starring Benedict Cumberbatch and Olivia Colman. I managed to back into making a dated pop culture reference timely again! So I'll use my title here to make another one.