OpenAI has officially announced plans to transform its corporate structure, revealing its intention to convert its for-profit arm into a Delaware Public Benefit Corporation. This comes as a report from The Information details ongoing discussions with Microsoft, its biggest backer, about the future of their partnership.
Key Points:
- OpenAI says it needs a new structure to raise capital at scale while maintaining its mission to benefit humanity
- The company defines AGI as “a highly autonomous system that outperforms humans at most economically valuable work”
- There are ongoing negotiations between OpenAI and Microsoft regarding equity stakes, cloud computing exclusivity, intellectual property rights, and revenue-sharing agreements.
In a detailed public statement, OpenAI outlined its vision for organizational change, emphasizing three core objectives: selecting an optimal nonprofit/for-profit structure, ensuring the nonprofit’s sustainability, and properly equipping each arm of the organization. The company explained that its current structure, established in 2019, requires evolution to meet the substantial capital requirements of AI development.
In the blog post, OpenAI maintains that the proposed public benefit corporation structure would enable it to “raise the necessary capital with conventional terms like others in this space” while preserving its mission to ensure artificial general intelligence benefits humanity.
However, there are clearly more complex dynamics at play. Both companies are still negotiating several aspects of their partnership. These discussions, which began around October, involve Microsoft’s future equity stake, cloud provider exclusivity, intellectual property rights, and revenue sharing arrangements.
Rumors have swirled for months about tension between the companies—which both CEOs have acknowledged, but dismissed as nothing out of the ordinary. During The New York Times‘ Dealbook Summit earlier this month, Altman said: “I will not pretend there are no misalignments or challenges [between us and Microsoft]; obviously there are some.”
The cloud computing relationship has become particularly strained. Microsoft has exclusive rights to provide cloud services to OpenAI, but has struggled/refused to meet the compute demands of the startup. This has led to reports of OpenAI trying to explore alternative arrangements.
In a recent podcast, Microsoft CEO Satya Nadella addressed their relationship. “What he wants to do, I have to accommodate for so that he can do what he needs to do…and he needs to accommodate for the discipline that we need on our end, given the overall constraints we may have [as a public company]. We have come a long way, and I’m going to prolong it as long as I can…it will only behoove us to have a long term stable partnership.”
OpenAI’s $6.6 billion funding round in October reportedly included a time constraint for the conversion that adds urgency to these negotiations. If it fails to complete its transformation within two years, investors can reclaim their money plus 9% interest.
Adding another layer of complexity, Elon Musk has filed a lawsuit to prevent the conversion, arguing that it would betray OpenAI’s original nonprofit mission to develop AI for the benefit of humanity and instead prioritize private financial gain. Meta has aligned itself with Musk’s position, writing a letter to the California Attorney General opposing the conversion:
Now, OpenAI wants to change its status while retaining all of the benefits that enabled it to reach the point it has today. That is wrong. OpenAI should not be allowed to flout the law by taking and reappropriating assets it built as a charity and using them for potentially enormous private gains.
Meta Asks California AG to Halt OpenAI’s For-Profit Shift
In a letter to California Attorney General Rob Bonta, Meta argues that OpenAI’s shift could distort market dynamics and misuse charitable assets for private gain.
In the backdrop of both the negotiations and the lawsuits is the definition of AGI (artificial general intelligence). This is important as it is reportedly an important clause in the company’s licensing agreement with Microsoft.
Elon Musk Sues OpenAI Again Over Fraud and Breach of Contract
Musk asserts that OpenAI misled him and the public by accepting contributions under the guise of developing artificial general intelligence for the benefit of humanity, only to profit from their technology and decline to open-source their AI models.
Of note, while The Information claims that the companies have now redefined AGI as “a system generating $100 billion in profits”, in today’s statement, OpenAI stated that their definition of AGI is “a highly autonomous system that outperforms humans at most economically valuable work”
Ultimately, OpenAI says its future structure would position the nonprofit with “significant interest” in the public benefit corporation, valued independently by financial advisors. The company says this would make it “one of the best resourced non-profits in history.”
