The close partnership between Microsoft and OpenAI has cracked

Microsoft has invested $13 billion in OpenAI, and CEO Satya Nadella had previously been willing to continue pouring money into the startup. But after OpenAI’s board briefly removed Sam Altman as CEO last November, Nadella and Microsoft reconsidered their relationship, the New York Times reported, citing four anonymous sources familiar with the talks.

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For several months after the incident with Altman’s dismissal, Microsoft did not provide financial support to its partner, although OpenAI will spend more than $5 billion this year as the startup continues to require additional funds and computing resources to train and operate its artificial intelligence systems. Mr. Altman once called the OpenAI-Microsoft partnership “the strongest friendship in technology,” but now the ties between the companies have begun to crumble. Obstacles to strengthening relations include OpenAI’s financial difficulties, doubts about the company’s stability, and disagreements between its employees and Microsoft employees.

The current situation demonstrates a common problem for AI startups – dependence on the world’s tech giants for money and computing resources, because these large companies control the huge cloud computing infrastructures that smaller players need to develop AI. No partnership demonstrates this relationship more clearly than the duo of Microsoft and OpenAI.

When OpenAI received a giant investment from Microsoft, it agreed to an exclusive deal to purchase computing resources from the corporation and to closely collaborate on the development of new AI systems. Over the past year, OpenAI has been trying to renegotiate the deal to increase computing power and cut costs, and Microsoft executives have become concerned that the corporation’s operations have become too dependent on OpenAI. Mr. Nadella privately admitted that the incident with Altman’s dismissal shocked and alarmed him. Since then, Microsoft has been busy preparing backup options. In March, most of the employees of Inflection, a direct competitor of OpenAI, moved to the corporation, and the company’s former co-founder and CEO Mustafa Suleyman headed the Microsoft division that develops consumer products based on OpenAI solutions. He also became a key person in the implementation of the corporation’s long-term plan to replace OpenAI technologies.

Some OpenAI executives and employees, including Altman, are outraged that Suleiman now works for Microsoft, and his subordinates have direct contact with OpenAI employees on work issues. Dozens of Microsoft engineers work out of OpenAI’s San Francisco offices, using OpenAI-provided laptops configured to run the startup’s security protocols. Recently, OpenAI employees complained that Suleiman yelled at a startup employee during a video call because, in his opinion, the startup was not supplying Microsoft with new technologies as quickly as it should. Others expressed dissatisfaction when Microsoft engineers uploaded critical OpenAI software without following the protocols agreed upon by the two companies.

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After Microsoft refused to discuss additional funding, OpenAI found itself in a difficult position: it needed additional funds to continue operating, and the exclusive nature of the agreement began to irritate the company’s management. Over the past year, it has repeatedly tried to negotiate lower prices and asked to be allowed to purchase computing resources from other companies. In June, Microsoft agreed to make an exception to the terms of the contract, and OpenAI was given the opportunity to enter into an agreement with Oracle for $10 billion: Oracle would become a supplier of hardware for the development of AI, and Microsoft would retain the supply of software to manage it. And a few weeks ago, Microsoft agreed to reduce prices for OpenAI and the use of its own resources. OpenAI has also begun trying to expand its investor base, with Apple, Nvidia and MGX, a technology investment company controlled by the United Arab Emirates, among the candidates being considered.

The possibility of a partnership between OpenAI and Apple has been discussed for years. In 2022, while ChatGPT controls were being developed, Altman and Microsoft senior technology director Kevin Scott held a meeting with Apple executives that ultimately led to ChatGPT on the iPhone. Nvidia has always been an important partner of the startup; OpenAI AI systems are created on its chips. And MGX helps startups build data centers around the world. In October, OpenAI closed a $6.6 billion funding round that included participation from Nvidia and MGX, but not Apple.

By the end of this year, OpenAI’s spending on computing resources will be at least $5.4 billion. And over the next five years, as the company expands, this amount will grow to reach $37.5 billion in 2029. It is not yet clear how the new format of cooperation between OpenAI and Microsoft, but the corporation is still happy with the changes. The technology giant continues to make money on the startup’s new solutions, and the startup continues to pay the corporation for significant amounts of computing resources. Although, according to OpenAI employees, these resources are not enough – there is even an opinion that because of this, another company will be the first to create AI comparable to the capabilities of the human brain.

Oddly enough, this will help the startup break with Microsoft: one of the clauses of the agreement states that when OpenAI creates strong artificial intelligence (AGI) comparable to human, the corporation will lose access to its technologies. This clause was supposed to ensure that a company the size of Microsoft would not abuse future technologies, but now OpenAI management sees it as an opportunity to conclude a more lucrative contract. According to the terms of the current contract, the achievement of AGI will be determined by the OpenAI board of directors.