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The stakes couldn’t be higher for the most important AI relationship in tech.
OpenAI isn’t just the highest-valued AI startup on Earth. It also has a “strategic partnership” with Microsoft that gives the tech giant access to its IP, a big cut of its revenue, and right of first refusal on any alternative cloud provider. Microsoft has earned that kind of power by plowing over $13 billion into OpenAI since 2019.
As OpenAI has boomed, tensions over the terms of the deal, which lasts until 2030, are boiling over. OpenAI has even considered reporting Microsoft to antitrust regulators for anticompetitive behavior, while Microsoft is threatening to walk away from talks entirely, throwing off OpenAI’s fundraising plans, the Wall Street Journal and Financial Times reported last week, citing multiple anonymous sources.
There are many areas of disagreement to unpack. Whoever wins out could reshape the future of AI.
Microsoft sent BI a joint statement with OpenAI that their talks are “ongoing” and that both sides are “optimistic we will continue to build together for years to come.” OpenAI didn’t respond to a request for comment.
Money and equity are major sticking points
Under its agreement, Microsoft gets 20% of OpenAI’s revenue, up to $92 billion, the FT reported based on people close to the discussions. That’s a big cut, and — perhaps unsurprisingly — OpenAI wants to reduce it. In exchange, it’s offering up Microsoft a bigger slice of itself.
The big question is how much equity OpenAI could give up to convince Microsoft to budge. The stakes under discussion range from as low as 20% to as high as 49%, according to the FT.
Shareholders of public companies like Microsoft tend to care more about revenue than stakes in highly unprofitable AI startups. That hurts OpenAI’s case.
The ‘AGI clause’ is still contentious
OpenAI has promised to build what it considers a safe version of Artificial General Intelligence, or AGI, which is when AI overtakes humans at most tasks. OpenAI takes AGI so seriously that its contract with Microsoft says that if OpenAI achieves it, Microsoft loses their 20% cut of OpenAI’s revenues and any access to new OpenAI technology.
AGI is a slippery concept, though, and figuring out when it’s been achieved is tricky. OpenAI and Microsoft have defined it as the capability of OpenAI’s systems to generate $100 billion in profits.
OpenAI is heavily unprofitable, according to documents reviewed by the New York Times. But that language about capabilities gives it some leeway to declare that it’s reached AGI anyways.
It’s no surprise, then, that Microsoft wants this clause removed in exchange for signing off on OpenAI’s restructuring plans, which are essential for it to raise billions of dollars, according to anonymous sources cited by The Information.
It doesn’t help the relationship that Microsoft CEO Satya Nadella doesn’t think AGI is a big deal or coming anytime soon, irritating OpenAI’s top brass, according to another WSJ report based on unnamed sources. Nadella even called AGI “nonsensical benchmark hacking” in a podcast earlier this year.
Windsurf is sharpening tensions
OpenAI reached an agreement to buy the coding assistant startup Windsurf for a cool $3 billion in May, undisclosed sources told Bloomberg. Windsurf competes directly with Microsoft Copilot.
That makes its IP valuable to Microsoft, which would have access to it under its current contract — but neither Windsurf nor OpenAI want that, BI previously reported.
Instead, they want Windsurf to be exempted from Microsoft’s IP rights. That raises the risk of Microsoft missing out on IP from future OpenAI acquisitions, something OpenAI hasn’t been shy about.
Windsurf declined to comment for this article. It remains independent and is not owned by OpenAI.
OpenAI’s messy structure is causing further issues
OpenAI is burning through billions of dollars a year and needs to raise billions more to keep itself going. Its unusual corporate structure — it’s controlled by a nonprofit — has led to substantial fundraising struggles, BI previously reported.
A major ace up Microsoft’s sleeve is that OpenAI needs its approval for a restructuring plan that would let it fundraise without further issues. SoftBank has conditioned $10 billion in funding on this restructuring, it disclosed.
On Friday, SoftBank CEO Masayoshi Son said at a shareholder meeting that he intends to go “all in” on Artificial Superintelligence — a level even more advanced than AGI.
Son added that he’d wanted to invest in OpenAI in its early days, but ended up losing out to Microsoft.
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