Microsoft is ready to step away from high-stakes negotiations with Openai on the future of the multi-billion dollar alliance as ChatGpt makers are looking to convert to commercial companies.
The software giant considered halting complex debate with a $300 million AI startup if both parties disagree with important issues, such as the scale of Microsoft’s Openai’s future investment, according to people with knowledge of the plan.
In this unforeseen situation, Microsoft, according to these people, relies on existing commercial contracts to maintain access to Openai’s technology until 2030, unless offers equal or greater than the current arrangement.
However, these people emphasized that Microsoft is operating in “integrity” and that they hope that both parties will meet daily and plan at the table and reach a deal.
“We have a long-term, productive partnership that has provided incredible AI tools for everyone,” Microsoft and Openai said in a joint statement. “The talk is ongoing and we are optimistic that we will continue to build together for years to come.”
Openai requires a contract with Microsoft to complete its transition from its non-commercial origins to a more conventional corporate structure.
Microsoft must approve the switch by the end of the year. Alternatively, Openai risks losing billions of funds from other investors, including SoftBank.
In discussions over the past year, the two fought over the amount that Microsoft, a reconstructed group, should receive in exchange for more than $13 billion invested in Openai so far. Stake discussions ranged from 20% to 49%.
The pair also revised the terms of the broad contract that was originally drafted when Microsoft invested $1 billion in Openai in 2019.
Under the current arrangement, Microsoft has the exclusive right to sell access to Openai’s models and receives 20% of revenues up to $920 billion.
According to several people close to the debate, Microsoft is rooted in continuing access to Openai’s technology or continuous access to the group’s revenue share.
The Wall Street Journal reported this week that Openai considered a “nuclear choice” that denies Microsoft as anti-competitive action over its partnership.
“Microsoft’s nuclear options are…and they’re just sweating Openai,” said one person close to Openai.
One person close to Microsoft said the “current status” is acceptable to large tech companies and is “pleasing with the current contract” and is preparing to “do it” until 2030.
“The market is concerned about how much Microsoft owns in Openai (and how much this deal is making, not how much money it is making from Microsoft,” said another person who discussed negotiations with Microsoft executives.
“The question is, what will Microsoft get in return for waiver of its revenue?”
Microsoft has already begun to diversify in recent months, moving away from the Openai model as part of the belief of Satya Nadella’s CEO that major models are “commoditized” or that they are less valuable to be able to sell AI-enabled applications and digital assistants built on top of them.
In May, the software giant made Elon Musk’s Xai model Grok available to cloud computing customers.
“Openai is no longer a front runner,” said one person close to Microsoft, describing the competition between rival AI model manufacturers.
Several other elements of the current agreement are also rising for negotiation, including Microsoft’s exclusive rights to sell Openai software through the Azure Cloud Computing service. The right to first refuse to provide computing infrastructure to OpenAI. Access to AI Group’s intellectual property before the software giant reaches “artificial general information.”
The latter clause refers to Openai creating “a highly autonomous system that surpasses humans at the most economically valuable work,” and as previously reported by the Financial Times, it is likely to be dropped.
Openai CEO Sam Altman and its Chief Financial Officer Sarah Friar also said the company is struggling to access the computing power needed to run ChatGpt, which competes with 505 million active users worldwide.
Two former Microsoft executives involved in managing Openai’s calculation requirements said the relationship between groups has been significantly frayed on the issue, particularly with Altman’s request to access more infrastructure quickly.
Even if the issue is resolved, the transaction must be approved by the Attorney General of Delaware and California. This conversion is subject to legal challenges from Xai Chief Masks, supported by former Openai employees.
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It is important for Openai to get an agreement with Microsoft. Investors in the AI Group’s past two funding rounds have either agreed to a request that the company urges its commercial institutions to succeed, or agreed that equity investments will become debt.
If this process is delayed or abandoned, investors have the option to charge a portion of the investment. Leading the latest round, SoftBank could cut $10 billion in investments by the end of the year if the conversion wasn’t completed. People close to Openai are confident that investors will retain their commitment, even if the transaction is delayed.
A Silicon Valley veteran close to Microsoft said the software giant “knows that this isn’t a problem to understand this, technically, negotiating is an Openai issue.”
