Microsoft and OpenAI disclosed Tuesday that they have agreed to a new deal that pegs the maker of ChatGPT at $500 billion and allows it to become a public benefit corporation. The agreement provides OpenAI with much greater latitude to operate its business while maintaining the two firms in partnership through 2032.
The deal resolves a significant issue that has been troubling both companies since 2019. At the time, Microsoft provided OpenAI with access to high-cost cloud computing power in return for oversight of much of OpenAI’s work. As ChatGPT exploded into popularity with over 700 million weekly users in September, those limits put major strain between the two companies.
Microsoft Makes Massive Profit on Investment
Microsoft will retain a 27% ownership of the new OpenAI Group PBC, valued at around $135 billion. The tech company had invested a total of $13.8 billion in OpenAI, so this deal returned almost 10 times its money to Microsoft. Microsoft’s shares rose 2.5% on the news, taking its overall market value back above $4 trillion.
The reformed company will continue to be controlled by the nonprofit OpenAI Foundation. CEO Sam Altman will not get any equity stake in the new arrangement, unlike last year when it was to receive a stake. The company is not going to go public any time soon, an OpenAI spokesperson stated.
Computing Contract Keeps Companies Connected
The agreement has a massive $250 billion purchase order for OpenAI to acquire cloud computing from Microsoft’s Azure service. In exchange, Microsoft forfeited its status as OpenAI’s first option for computing services. Microsoft also will not have rights over any hardware manufactured by OpenAI. That’s important because OpenAI acquired Jony Ive’s design firm io Products for $6.5 billion in March.
The alliance goes on through at least 2032, with Microsoft retaining some rights to OpenAI’s products and artificial intelligence technology even if OpenAI achieves artificial general intelligence – the juncture where AI systems can think like intelligent adult humans. The previous 2019 deal had numerous regulations depending on when OpenAI would achieve that mark, and this new agreement calls for an outside panel to confirm whether and when this occurs.
Deal Brings Clarity to Future Expansion
Bret Taylor, chair of the board at the OpenAI Foundation, stated that the company has streamlined its organization as the nonprofit maintains control. Gil Luria of investment firm DA Davidson stated the agreement “solves the long-standing issue” of how OpenAI is structured as a nonprofit and hashes out who owns which technology between the two firms. He further stated that the more straightforward organization should better enable OpenAI to raise additional money from investors.
50 Park Investments CEO Adam Sarhan pointed out that OpenAI continues to have transparency and safety oversight concerns, yet thinks “this structure should give a clearer way forward for innovation and accountability.” The reorganization eliminates significant roadblocks that have been in place since OpenAI inked its original Microsoft deal, when the firm was largely conducting AI safety research ahead of ChatGPT making it a consumer sensation.
News At Glance
- Microsoft and OpenAI close pact worth $500 billion for ChatGPT maker
- Microsoft retains 27% ownership worth $135 billion, almost 10x return on investment
- OpenAI reforms into public benefit corporation with greater business autonomy
- $250 billion cloud computing deal keeps firms connected up to 2032
- CEO Sam Altman will not get equity stake in reformed company
FAQs
Q: What does this deal signify for OpenAI’s future?
A: OpenAI is now able to raise capital more freely and make business transactions with fewer limitations imposed by Microsoft. The company reorganized as a public benefit corporation with the nonprofit foundation retaining control.
Q: How much did Microsoft earn from this transaction?
A: Microsoft had put in $13.8 billion in total in OpenAI. With its interest now valued at $135 billion, Microsoft earned almost 10 times its initial investment.
Q: Does Sam Altman own a share of OpenAI?
A: No, the CEO will not have any ownership of equity in the revamped company. This is contrary to previous discussions whereby he was supposed to acquire a stake.
Q: What is the fate of Microsoft’s computing services?
A: OpenAI purchased $250 billion in cloud computing on Microsoft’s Azure platform. Nonetheless, Microsoft forfeited its sole right to remain OpenAI’s computing provider.
Q: For how long will Microsoft and OpenAI remain engaged?
A: The partnership lasts through at least 2032. Microsoft retains some rights to OpenAI’s technology and products even if AI becomes human-level smart by then.
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