Open AI is thinking about transitioning from a not-for-profit into a for-profit company, and its deep-pocketed benefactor, Microsoft (MSFT), has a whole lot to get if the ChatGPT programmer obtains the thumbs-up to act even more like a start-up.
“Anything that frees up OpenAI to focus on profit is likely to benefit Microsoft’s investment in the company,” claimed Sarah Kreps, supervisor of the Tech Policy Institute in the Brooks School of Public Policy at Cornell University.
A reconfigured service framework would certainly offer Microsoft a chance to renegotiate its currently charitable earnings cap, along with dispose of a stipulation that denies Microsoft an interest in Open AI-created general artificial intelligence (GAI), according to one more onlooker.
“[OpenAI] is clearly saying that the nonprofit will no longer be in control, so presumably that means Microsoft and other investors will have more say about what OpenAI does,” said Rose Chan Loui, founding executive director of the University of California Los Angeles’s Lowell Milken Center for Philanthropy and Nonprofits.
But there are potential snags for Microsoft as OpenAI attempts to shed its charitable cloak.
OpenAI’s huge valuation, labyrinth of for-profit subsidiaries, and potentially risky technology make a for-profit switch legally and publicly complicated — and could invite pushback from regulators.
Still, OpenAI’s investors see plenty of upside. On Wednesday, the company announced it raised some $6.6 billion in its latest funding round, valuing the Sam Altman-helped firm at $157 billion. However, that valuation is largely contingent on OpenAI becoming a for-profit entity.
Whirlwind of change
OpenAI is in the midst of a whirlwind of change.
It is experiencing an extended executive exodus including, most recently, the departure of chief technology officer Mira Murati. It also faces increased competition from rivals including Google (GOOG, GOOGL) and Amazon-backed (AMZN) Anthropic.
The reclassification to a for-profit structure would be yet another seismic shift for OpenAI, upending the way it was established nearly a decade ago.
It began in 2015 as a nonprofit under the name OpenAI Inc., a nod to its mission of advancing humanity instead of pursuing profits.
“The corporation is not organized for the private gain of any person,” Open AI’s certification of consolidation mentioned in its arranging files, in addition to a pledge to maintain its innovation as open resource for public advantage.
Things developed in 2019 when Open AI CHIEF EXECUTIVE OFFICER Sam Altman and his group created a for-profit subsidiary to raise outside venture capital — including billions from Microsoft.
It was structured in such a way that the for-profit subsidiary, technically owned by a holding company owned by OpenAI employees and investors, remained under the control of the nonprofit and its board of directors while giving its biggest backer (Microsoft) no board seats and no voting power.
The inherent tension between these two parts of the enterprise is what contributed to a dramatic boardroom clash in 2023, when Altman was ousted by the board and then brought back five days later.
In the aftermath, Microsoft took a non-voting observer position on OpenAI’s board, only to relinquish that seat this year as both OpenAI and Microsoft came under more regulatory scrutiny.
The idea of upending the current structure has already attracted interest from US and European regulators and exacerbated an ideological divide between scientific and business leaders who warn that machine learning technologies like those developed by OpenAI should remain accessible to the public.
The technology, they argue, poses an existential threat to humankind and, therefore, should be operated in a way that’s subject to public scrutiny.
Open AI and Microsoft are likewise component of a continuous query by the US Federal Trade Commission over problems that AI market loan consolidation is “distorting innovation and undermining fair competition.”
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