OpenAI and Microsoft Risk Open War
Berber Jin
It has been a minute since we last had an update on the continued infighting between Microsoft and OpenAI. Which is to say, it has been a month. So how are things going? Not great, Microsoft Bob.
Tensions between OpenAI and Microsoft over the future of their famed AI partnership are flaring up.
OpenAI wants to loosen Microsoft’s grip on its AI products and computing resources, and secure the tech giant’s blessing for its conversion into a for-profit company. Microsoft’s approval of the conversion is key to OpenAI’s ability to raise more money and go public.
But the negotiations have been so difficult that in recent weeks, OpenAI’s executives have discussed what they view as a nuclear option: accusing Microsoft of anticompetitive behavior during their partnership, people familiar with the matter said. That effort could involve seeking federal regulatory review of the terms of the contract for potential violations of antitrust law, as well as a public campaign, the people said.
If there's ever been a more "yikes" report about a business partnership, it's hard to think of what that is. Just over a year ago, I wrote my first real post on this matter, reading some tea leaves to try to game out where this relationship was heading. I titled the post as a question: Will OpenAI Bite the Microsoft Hand That Feeds?
I think we have our answer. As I wrote last May:
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?
What they'll do, as it turns out, is make any deal OpenAI wants to do a nightmare. From trying to shift into more standard company structure to declaring "AGI" to acquiring companies, as Jin reports:
OpenAI and Microsoft are at a standoff over the terms of the startup’s $3 billion acquisition of the coding startup Windsurf, the people said. Microsoft currently has access to all of OpenAI’s IP, according to their agreement. It offers its own AI coding product, GitHub Copilot, that competes with OpenAI. OpenAI doesn’t want Microsoft to have access to Windsurf’s intellectual property.
You'd think Microsoft would be pissed off that OpenAI was acquiring a competitor to GitHub Copilot – especially given that OpenAI itself already competes in the space. But actually, if this report is accurate, it's the other way around! And it makes some sense, if the two sides are clearly in the midst of a divorce – where my analogies for the two side naturally drifted next – OpenAI is going to want to keep those future earnings (and more importantly here, data) from the ex.
Speaking of...
The companies continue to be at odds over how much of OpenAI Microsoft would own if it converts into a public-benefit corporation. Microsoft is currently asking for a larger stake in the new company than OpenAI is willing to give, people familiar with the matter said.
Yeah, this is obviously the main sticking point for the two sides at this point. I broke this down more in-depth last month but at a high level, Microsoft has their roughly 49% share of future profits (which actually starts at 75% as they're repaid for their initial investments). But there's no way OpenAI is going to let them own 49% of the actual equity in the company. This isn't Meta hackquiring Scale. This is a $300B (and constantly rising) company. They're raising more money right now in their latest round than any company has ever raised in an IPO.
And the truth is that Microsoft shouldn't want to own that much of OpenAI, simply because the higher the ownership stake, the more scrutiny it will draw from regulators. 49% may be a minority share, but it's really a wink-wink minority share. It's a LOOK OVER HERE: nothing-to-see-here share. There's a reason Anthropic has caps on how much their Big Tech benefactors can own. Microsoft probably needs to be near the 33% I had originally guessed, and ideally would be closer to the just-under 25% that Amazon likely owns of Anthropic.
Did someone say "antitrust"?
Under the Biden administration, the Federal Trade Commission opened a broad antitrust investigation into Microsoft last year. It also examined Microsoft’s investment in OpenAI, alongside other big tech investments into AI more than a year ago.
Can you imagine if a (second) Microsoft antitrust trial kicks off and OpenAI is a willing witness for the government? There's not enough popcorn in the world.
Ultimately, this feels just like a threat from OpenAI – albeit a rather crazy one – to get Microsoft to the negotiating table. Maybe Sam Altman is learning a thing or two from President Trump: do whatever it takes to gain any leverage you can. You'd have to think that given how much money is riding – on all sides – here, that cooler heads will prevail. But you also would have thought that months ago.
“We have a long-term, productive partnership that has delivered amazing AI tools for everyone,” representatives for the two companies said in a joint statement. “Talks are ongoing and we are optimistic we will continue to build together for years to come.”
Uh oh. The dreaded joint statement. That's how you know things are really bad.
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler