Microsoft and OpenAI scrap their famed AGI agreement

OpenAI and Microsoft have rewritten the rules of their once-tight alliance, and the so-called AGI clause that governed their partnership for years is now officially dead. The move marks a significant shift in one of the tech industry’s most closely watched collaborations.

On Monday morning, Microsoft outlined several major updates to its long-standing agreement with OpenAI. While Microsoft will remain OpenAI’s primary cloud partner, and OpenAI products will still debut on Azure unless Microsoft cannot or chooses not to provide the necessary capabilities, the new terms grant OpenAI far more flexibility. The AI company can now serve its products to customers across any cloud provider, opening the door to working with rivals like Amazon or Google. This change is designed to help OpenAI court enterprise customers as it reportedly prepares for an initial public offering, while also easing the compute constraints that have caused friction with Microsoft in the past. Microsoft will still receive a revenue cut from these outside deals.

Perhaps the most consequential change is the removal of the AGI clause from the contract. This provision, which set conditions around the achievement of artificial general intelligence (a loosely defined concept referring to AI systems that match or exceed human capabilities across diverse tasks), had long shaped the financial and strategic contours of the partnership.

The original revenue-sharing agreement was structured to continue indefinitely until AGI was declared. Now, Microsoft’s revenue-share payments from OpenAI will only run through 2030, continuing at the same percentage but subject to a total cap. Critically, these payments will end regardless of OpenAI’s technological progress, including any advancements toward AGI. So the old deal is effectively gone.

This is the second time the clause has been renegotiated. When OpenAI completed its controversial for-profit restructuring in October, it required Microsoft’s approval. That earlier renegotiation extended Microsoft’s intellectual property rights for OpenAI’s models and products through 2032, even if an independent panel had declared AGI had been reached. Under that version, Microsoft would have lost its rights to OpenAI’s technology once AGI was attained.

Now, there is no independent panel, no conditional language tied to an AGI declaration, and no requirement for OpenAI to ever announce if it reaches that milestone. Microsoft’s license to OpenAI’s models and products through 2032 is now non-exclusive, meaning any competitor can strike a similar deal.

Microsoft previously held about 27 percent of OpenAI on an as-converted diluted basis. The new terms confirm that Microsoft remains a major shareholder in OpenAI’s growth but do not specify an exact ownership stake. There is no indication that stake has changed.

The pressure is mounting for OpenAI to move closer to profitability. The company and its rivals have been burning through investor cash in the race to acquire more computing power and reach AGI. OpenAI has stated it is doubling down on enterprise sales and coding as its primary revenue drivers, methodically cutting what it calls “side quests” such as Sora and ChatGPT’s planned erotica features. It has also restructured its science division. The revised Microsoft deal is another step in that direction.