According to the Financial Times, the software giant has thought about ditching the complex talks if they cannot agree on thorny issues, including how big a slice Vole should own in OpenAI.
If that happens, Microsoft will rely on its current commercial deal, which keeps access to OpenAI’s tech until 2030, unless something better turns up.
Sources said Microsoft is still operating “in good faith” and both sides are meeting daily with hopes of reaching a deal.
Microsoft and OpenAI said in a joint statement: “We have a long-term, productive partnership that has delivered amazing AI tools for everyone. Talks are ongoing and we are optimistic we will continue to build together for years to come.”
OpenAI needs the deal to complete its transformation from a non-profit into a proper corporate entity, something it claims will unlock funding and enable a stock market listing.
The shift needs Microsoft’s approval before the year ends or OpenAI risks losing billions from backers such as SoftBank.
For a year, both camps have argued about how much equity Microsoft should get in return for its more than $13 billion injection into OpenAI. Talks have floated figures between 20 per cent and 49 per cent.
They are also rewriting the broader contract originally drawn up in 2019 when Microsoft first ploughed in $1 billion. Under that deal, Microsoft gets exclusive rights to flog OpenAI’s models and pockets 20 per cent of revenue up to $92 billion.
Multiple insiders said Microsoft is not keen to give up any access to OpenAI’s tech or let go of its revenue share.
“The market cares about how much revenue Microsoft is making... not about how much equity it owns in OpenAI, [and] this deal moves revenue away from Microsoft. The question is, what does Microsoft get in return for giving up the right to that revenue?” one market analyst told the FT.
Microsoft has already started hedging its bets, distancing itself from OpenAI’s models in favour of building AI-powered apps on top. Chief executive Satya Nadella thinks the models themselves will become commoditised.
In May, Microsoft made Elon Musk’s xAI model Grok available to customers on its Azure platform. One insider close to Microsoft said, “OpenAI is not necessarily the frontrunner anymore.”
Other parts of the deal are still under negotiation. These include Microsoft’s exclusive rights to sell OpenAI’s software through Azure, its first dibs on providing computing power, and early access to OpenAI’s intellectual property.
That last part, tied to “artificial general intelligence” looks likely to be scrapped altogether.
OpenAI’s chief executive Sam Altman and its finance boss Sarah Friar said the outfit is struggling to get enough computing grunt to run ChatGPT and train new models.
Two former Microsoft execs who handled OpenAI’s compute needs said the relationship has deteriorated, mainly due to Altman demanding faster access to more hardware.
Even if a deal is struck, it will need sign-off from attorneys-general in Delaware and California. There’s a legal spat from xAI’s Elon Musk, who’s being backed by former OpenAI staff.
OpenAI has to get Microsoft onside. Investors in its last two funding rounds only stay in the game if the company becomes for-profit. Otherwise, their equity turns into debt.
If things fall through or drag on, those investors can ask for their money back. SoftBank could slash its $30 billion commitment by $10 billion if the change isn’t wrapped up by year end. Despite this, sources close to OpenAI believe the investors will hang in there.
A veteran in Silicon Valley with ties to Microsoft summed it up neatly: “Microsoft knows that this is not its problem to figure this out, technically, it’s OpenAI’s problem to have the negotiation at all.”
