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OpenAI is currently rewriting the terms of its contract with Microsoft in ‘high-stakes negotiations’ that will help the AI startup launch a future initial public offering (IPO), according to a report in the Financial Times. Notably, Microsoft is one of the biggest holdout to OpenAI’s recently announced plans to spin off its for-profit arm into a public benefit corporation (PBC).
The critical issue in the negotiations is reportedly how much equity Microsoft will receive in the new entity in exchange for its $13 billion-plus investment in OpenAI. Additionally, the two companies are said to be revisiting the terms of an older agreement that was drafted when OpenAI received its first $1 billion investment from Microsoft in 2019.
As per the current contract, Microsoft has access to OpenAI’s intellectual property like its new models and products along with a share in the revenue of product sales till 2030.
However, now Microsoft is willing to take a hit on some of the equity stake it would get in OpenAI’s new for-profit business in exchange for continuing to use the ChatGPT maker’s technology beyond the 2030 cutoff date.
All is not well between Microsoft and OpenAI?
Microsoft has relied heavily on OpenAI’s technology in its software products, while also providing the AI startup with vast amounts of computing power to train its AI models.
However, there has been increasing competition between the two companies in recent times due to OpenAI’s increasing ambitions. Among other things, OpenAI has recently been targeting enterprise users with its AI offerings, while also partnering with SoftBank and Larry Ellison’s Oracle on the $500 billion Project Stargate to build an AI infrastructure in the US.
A senior Microsoft employee while talking about the tensions between the two companies told FT, “The friction comes partly due to style. OpenAI says to Microsoft ‘gives us money and compute and stay out of the way: be happy to be on the ride with us.’ So naturally this leads to tensions,”
“To be honest, that is a bad partner attitude, it shows arrogance.” the employee added.
Meanwhile, the publication quoted a person close to OpenAI as saying, “Microsoft still wants [this conversion] to succeed. It’s not like it’s all gone to hell and it’s open warfare. There’s a tough negotiation but we’re confident we’ll get it done.”
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