Microsoft Claws Away 'The Clause' as OpenAI Claws Back Some Independence
"The Clause" is dead. Long live, the clause.
That's the easy read of this out-of-the-blue update to the agreement between OpenAI and Microsoft. I say out-of-the-blue because the two sides just spend months hammering out an updated agreement that was finalized just six months ago. This is an update to that update.
Of course, it wasn't really out of the blue. This update is all about letting OpenAI offer their models on AWS. For proof of that, look no further than Amazon CEO Andy Jassy tweeting, "Very interesting announcement from OpenAI this morning." As he notes, there's an AWS event in San Francisco tomorrow. So yeah, they wanted to get this squared away before that.
Why would Microsoft agree to that? Clearly, OpenAI finally agreed to kill "The Clause". Long a main point in the relationship between the two, it basically gave OpenAI a position of power over Microsoft because it allowed them to pull back their AI if and when they achieved "AGI". Of course, this was also a main sticking point in that aforementioned last update to their agreement, but while Microsoft successfully defanged it at that point – notably by ensuring OpenAI's nonprofit board could no longer unilaterally declare AGI achieved, but also by maintain rights to some models and technology even after AGI is achieved – it didn't fully go away. Now it's going away. It's simply replaced by a date: 2032.
That date was also a part of the last negotiations, but this makes it cleaner. It's hard to tell if it's some sort of acknowledgement that AGI might not be here by then or that it really no longer matters – at least for business purposes. Regardless, what matters is OpenAI having more optionality when it comes to offering up their products on other clouds. This is one big way in which Anthropic has started to eat their lunch. Now fresh clouds are back on the menu.
Sort of. Maybe. Probably.
The weirdest part of the announcement – which is a mere 242 words, and because there can't be any sort of announcement between these two without a weird part, it's just the rule – is the following:
Microsoft remains OpenAI’s primary cloud partner, and OpenAI products will ship first on Azure, unless Microsoft cannot and chooses not to support the necessary capabilities. OpenAI can now serve all its products to customers across any cloud provider.
That's seemingly a pretty important "and" there. In other words, as least in this telling, Microsoft still has a right of first refusal of sorts here. It's not enough for them to not be able to support something that OpenAI wants to do with some new offering on another cloud provider, Microsoft has to explicitly say they will not support it, making it seemingly okay if OpenAI looks elsewhere.
In practice, this probably means that Microsoft will continue to get first look rights to all of OpenAI's models in Azure, but over time, Microsoft will be okay with those models trickling down elsewhere.
I can't wait to see what trips up this new clause! Because you just know something will. OpenAI will work on something with Google or Amazon that they'll say Microsoft can't technically offer – perhaps around TPUs and/or Trainium chips? – and Microsoft will get pissed.
But for now, clearly Microsoft signed off on OpenAI's deal with Amazon here – otherwise we wouldn't get that Jassy tweet – though kind of a dick move not to acknowledge Microsoft there? Then again, Microsoft had been threatening to sue over the new OpenAI/Amazon deal, believing it violated their exclusive OpenAI rights. So...
It's still somewhat surprising that Microsoft is giving in here seeing as it's Amazon, owners of the only cloud bigger than their own. But it's also sort of a win/win. Beyond the aforementioned removal of The Clause, Microsoft still owns upwards of 27% of OpenAI (perhaps more like 25% after the dilution of the last mega round). OpenAI getting access to AWS definitely boosts the value of OpenAI because it should massively boost the business of OpenAI. Again, not only against Anthropic, but overall as the company tries to go public.
For all the bickering between OpenAI and Microsoft over their relationship for years now, Microsoft would probably rather own their percentage of a larger number rather than a smaller one. On some level, it's just math. Yes, even between these two star-crossed lovers.
And yes, the two will have to keep working together – at least for the next six years or so.1 Though you have to believe Microsoft will appreciate even more distance from their old bedfellow. Especially as they work towards AGI/Superintelligence fully on their own now. And they'll certainly enjoy not having to send back a 20% cut to OpenAI any longer – and you can imagine Wall Street will like that too, ahead of Microsoft's earnings later this week.
OpenAI will still be paying their 20% cut for sales of services hosted on Azure, but they get to pull that end date forward a couple years, to 2030. And it's also now apparently capped at some level, but they're not sharing what that level is. This is a smaller win for OpenAI which had wanted to bring this rev share down, and it will be a better story for the IPO roadshow.
Anyway, I'm no divorce lawyer, but that's my read. While OpenAI was somewhat free to see other people under their last updated agreement, this gives them much more freedom (provided Microsoft doesn't fall back in love with OpenAI and/or isn't spiteful of their new relationship potential – famous last clause). And Microsoft, in turn, gets to rip-up that pesky AGI prenup once and for all.
One more thing: while this actually doesn't seem to have anything to do with the trial between Elon Musk and OpenAI/Microsoft, it's interesting timing giving that it just kicked off today. Might some of this come up? In particular, the AGI bit?
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
M.G. Siegler
1 I think we can easily predict when Microsoft may dump their stake in OpenAI – though they might do so in chunks before then depending how the IPO goes! ↩