New Report Details Growing Pains of Microsoft’s Partnership With OpenAI

As OpenAI is getting ready to transition from from a nonprofit organization to a for-profit company, a new report from the New York Times detailed how the company’s relationship with Microsoft has become more tense in recent months. This is a complex partnership where Microsoft uses OpenAI’s technology to develop its own AI offerings, while the ChatGPT maker depends on Microsoft’s Azure cloud for its AI training.

Microsoft invested billions of dollars into OpenAI to get an exclusive license on GPT-4 and the rest of OpenAI’s AI models. The company is also selling access to OpenAI’s technology and other AI models from competitors on its Azure platform.

However, the launch of a new Microsoft AI division earlier this year that’s developing proprietary AI models suggests that Microsoft would prefer to avoid depending too much on OpenAI to compete in the generative AI race. And according to the NYT report, Microsoft hiring Mustafa Suleyman, the former chief executive and co-founder of Inflection AI to lead its new AI division ruffled some feathers at OpenAI.

“Some OpenAI executives and employees, including Mr. Altman, are angered that Mr. Suleyman is at Microsoft,” the report said citing people familiar with the relationship between the two companies. Moreover, the fact that some Microsoft engineers are now working at OpenAI’s offices in San Francisco using laptops provided by the company is said to be creating some internal frictions.

“Some OpenAI staff recently complained that Mr. Suleyman yelled at an OpenAI employee during a recent video call because he thought the start-up was not delivering new technology to Microsoft as quickly as it should, according to two people familiar with the call. Others took umbrage after Microsoft’s engineers downloaded important OpenAI software without following the protocols the two companies had agreed on, the people said.”

These office-related problems are probably not the main cause of tensions between the two companies, however. Running an AI startup like OpenAI that operates on a global scale is incredibly expensive, and the New York Times previously reported that OpenAI could lose $5 billion this year.

Earlier this month, OpenAI raised $6.6 billion via a new funding round led by Thrive Capital in which Nvidia, Microsoft, MGX and others also participated. This already raise some questions regarding how much equity Microsoft will get once OpenAI finally becomes a for-profit company. However, while Microsoft may eventually own a huge part of one of the most successful startups in recent years, OpenAI has also been trying to reduce its costs and find other cloud partners than Microsoft to support its development.

The NYT reports that Microsoft recently allowed OpenAI to sign a “roughly $10 billion” cloud computing deal with Oracle. According to the report, “Oracle is providing computers packed with chips suited to building A.I., while Microsoft provides the software that drives the hardware.”

While Microsoft is reportedly no longer OpenAI’s exclusive cloud partner, the NYT also learned that the Redmond giant agreed to change the price structure of its cloud computing deal with OpenAI. “ In recent weeks, OpenAI and Microsoft negotiated a change to a future contact that reduces how much Microsoft will charge the smaller company for computing power, although the exact terms were unclear,” the report said citing a person familiar with the change.

If it still looks like the Microsoft/OpenAI partnership remains beneficial for both companies, the New York Times report also revealed an interesting clause in the contract that may allow the AI startup to break it: Once OpenAI reaches its goal to create “artificial general intelligence,” which is a type of AI that that matches or surpasses human cognitive capabilities, Microsoft will lose access to the startup’s technology.

“The clause was meant to ensure that a company like Microsoft did not misuse this machine of the future, but today, OpenAI executives see it as a path to a better contract,” the NYT said citing a person familiar with the company’s negotiations. However, it’s up to the OpenAI board to decide when the company has successfully created artificial general intelligence… and that day could well arrive sooner than expected.