OpenAI and Microsoft are the Silicon Valley power couple leading the “AI revolution.” For years, Microsoft has poured money into OpenAI (we’re talking billions and billions of dollars) and OpenAI has allowed Microsoft exclusive access to its software. This partnership has led to big success for both firms (OpenAI’s popularity has skyrocketed in recent months, and Microsoft used the AI startup’s tech to thrust itself into the spotlight and also somehow redeem its terrible search engine, Bing). But, according to a new report from The Wall Street Journal, this powerful partnership may be situated on shakier ground than everybody previously realized.ii
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The trouble seems to stem from the duo’s unconventional business arrangement—which the Journal aptly characterizes as an “open relationship.” See, because Microsoft doesn’t own OpenAI outright, the startup isn’t technically beholden to the software giant. But Microsoft also provides the cloud computing infrastructure necessary to fuel OpenAI’s popular new tools, which makes it a particularly influential investor.
On top of this, according to the financial deal worked out between the two of them, Microsoft earns a large percentage of OpenAI’s profits until the startup repays Microsoft’s initial investments. After the initial investment is paid, Microsoft will retain a large stake in the company and earn a certain percentage of OpenAI’s profits until it hits a cap. But again, because it’s not technically owned by Microsoft, OpenAI is still (technically) a free agent.
So…that certainly sounds like it could be a tricky situation. Due to the unusual relationship between the two companies, both seem to be experiencing some occasional friction. The journal reports:
Much of the drama can be chalked up to the normal infighting and bruised egos that emerge when two companies join forces. But this unconventional coupling could run into further problems as both sides peddle comparable software and services…
In other words: because Microsoft doesn’t own OpenAI outright, the two companies are not only partners but also, to a certain degree, competitors. How are both companies navigating those choppy, conflicted waters? To hear the Journal tell it, the answer to that question is: awkwardly.
Anonymous sources close to both companies told the newspaper about a number of tense moments between the two companies. For one, OpenAI reportedly told Microsoft not to rush the integration of its GPT-4 technology with Microsoft’s search engine Bing. Microsoft doesn’t appear to have listened (you might remember that Bing notably had a meltdown not long after said integration). At the same time, some staff at Microsoft were apparently taken by surprise at the timing of OpenAI’s launch of ChatGPT. On top of both of these developments that seem somewhat odd for a close partnership, the long leash that OpenAI has means it’s been able to court other companies for partnerships—even those that qualify as competitors or enemies of Microsoft. The Journal reports:
OpenAI has continued to develop partnerships with other companies. Microsoft archrival Salesforce offers a ChatGPT-infused product called Einstein GPT. It is a feature that can do things like generating marketing emails, competing with OpenAI-powered features in Microsoft’s software.
At the same time, there doesn’t seem to be total trust between the two companies. OpenAI has apparently keeping some of its cards close to its chest—despite Microsoft’s earnest attempts to read them. The Journal reports that:
Some researchers at Microsoft gripe about the restricted access to OpenAI’s technology. While a select few teams inside Microsoft get access to the model’s inner workings like its code base and model weights, the majority of the company’s teams don’t, said the people familiar with the matter. Despite Microsoft’s significant stake in the company, most employees have to treat OpenAI’s models like they would any other outside vendor.
Yeah, that must not feel very good. Sucks to be kept out of the circle of trust!
In the end, Microsoft and OpenAI are still in a very enviable position relative to many of their Silicon Valley peers. But the AI revolution is sure shaping up to be more of a marathon than a sprint, and the question remains: can these two keep a chummy relationship for the long haul? I guess we’ll have to wait and see.