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Microsoft and OpenAI: Goodbye bromance, hello open warfare
Wednesday October 30, 2024. 11:00 AM , from ComputerWorld
If ever there were a bromance that seemed made in tech heaven, it’s the one between Microsoft and OpenAI. Microsoft was an early investor in OpenAI, initially putting $1 billion into the company, which allowed the upstart firm to develop and release the groundbreaking generative AI-based ChatGPT to effectively launch the current genAI boom.
That helped OpenAI become the most influential and valuable AI startup in the world. (Since then, Microsoft has invested $13 billion more in the company.) For its part, Microsoft became the world leader in AI thanks to that early investment. It uses ChatGPT as the basis for its line of Copilot tools. It also owns a chunk of OpenAI and, thanks to the relationship, has reaped billions in revenue. The sky seems to be the limit for even more. Along the way, the two companies lobbied Congress together, plotted strategy together, and seemed to be in lockstep on pretty much everything. When OpenAI ousted Sam Altman as CEO last year, Microsoft CEO Satya Nadella worked behind the scenes to get him reinstated. The companies seemed to be so close that Altman called their relationship “the best bromance in tech.” In front of a sizable audience last year at a conference run by OpenAI, Nadella turned to Altman and said, “We love you guys!” Altman responded, “Awwww.” If it were a movie, the romance would be so treacly, you’d walk out. But that was then. Now, the companies have their knives out for each other. This should surprise no one. In March, I noted that the two companies “seem more like frenemies than BFFs.” I pointed out that Altman and OpenAI COO Brad Lightcap openly tried to woo enterprises away from Microsoft’s Copilot and toward OpenAI’s Enterprise ChatGPT. Reuters reported that Altman and Lightcap courted more than 300 corporate executives in New York, San Francisco, and London, dissing Microsoft by saying enterprises would be able to work directly with the people who built genAI technology rather than getting it second-hand from Microsoft. Nadella had previously taken aim at OpenAI, saying, “If OpenAI disappeared tomorrow…, we have all the IP rights and all the capability. We have the people, we have the compute, we have the data, we have everything. We are below them, above them, around them.” Going from bad to worse Since then, things have only gotten worse. There are plenty of reasons they’re fighting, but the biggest reason is — you guessed it — money. Microsoft’s $14 billion investment in OpenAI includes cash as well as computing resources — in particular, the vast amounts of computing power required to train and run OpenAI’s technologies. The most recent cash infusion came in early October, when OpenAI raised $6.6 billion from investors including various banks, investment funds, Microsoft, and AI chip maker Nvidia. (Microsoft reportedly invested $1 billion of that.) After the round of funding, OpenAI is estimated at having a value of $157 billion. Even that isn’t enough for OpenAI, and that’s where some of the disagreements begin. Though it may be worth $157 billion, OpenAI is burning through cash, losing $5 billion a year even as its expenses continue to skyrocket. That won’t end soon. In fact, things will likely get worse. The New York Times reports that by 2029, the company will spend $37.5 billion annually in computing costs — and that figure doesn’t include salaries, rent, and all the company’s other expenses. As a result, OpenAI wants Microsoft to provide it with even more computing power. And Microsoft is balking. The Times notes: “OpenAI employees complain that Microsoft is not providing enough computing power…. And some have complained that if another company beat it to the creation of AI that matches the human brain, Microsoft will be to blame because it hasn’t given OpenAI the computing power it needs.” OpenAI is now looking elsewhere to get those resources. It’s signed a deal worth nearly $10 billion with Oracle to provide it. In addition, Microsoft and OpenAI have recently renegotiated how much Microsoft’s computing power should be valued monetarily, although it’s not clear whether the new deal lessens or increases the financial value. Because of these kinds of issues, Microsoft has hedged its bets against relying too much on OpenAI for its AI future. Notably, it paid $650 million or more to hire almost the entire staff from the OpenAI competitor Inflection. It also hired Inflection’s former chief executive and co-founder, Mustafa Suleyman, to be in charge of Microsoft’s AI efforts. Suleyman and OpenAI have already had a number of run-ins, with Altman increasingly upset at Suleyman’s hiring. Expect that to get worse. Gil Luria, an analyst at the investment bank D.A. Davidson told the Times, “Microsoft could be left behind if it is only using OpenAI technologies. It is a real race — and OpenAI may not win it.” What’s next? All this is a prelude to the biggest issue of all: figuring out the fair market value of Microsoft’s ongoing investment in OpenAI. It’s an incredibly complicated issue, because OpenAI was originally founded as a nonprofit company, and Microsoft made much of its investments during that time. OpenAI has since essentially turned itself into a for-profit company. The Wall Street Journal reports that both companies have hired investment banks to try and negotiate the issue. Once investment banks get involved, it’s no longer a knife fight. Now, it’s time for heavy munitions. And that means the fight between the two companies has barely begun. Who will come out on top? OpenAI’s $157 billion worth makes it a powerful competitor. But as I write this, Microsoft is valued at $3.19 trillion. And Nadella, despite his low-key, friendly demeanor, is even more of a shark than Altman. I’d put my money on Microsoft.
https://www.computerworld.com/article/3593206/microsoft-and-openai-good-by-bromance-hello-open-warfa...
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