OpenAI’s For-Profit Shift and New Microsoft Deal
▼ Summary
– OpenAI has completed its restructuring into a public benefit corporation (OpenAI Group PBC) with its nonprofit arm, now called the OpenAI Foundation, holding equity valued at approximately $130 billion.
– The restructuring followed negotiations with state attorneys general and a legal battle with Elon Musk, who co-founded OpenAI as a nonprofit in 2015 and sued to stop the conversion.
– A new deal with Microsoft reduces Microsoft’s stake to about 27% and clarifies IP rights, extending them through 2032 and including post-AGI models with safety measures.
– An independent expert panel will verify OpenAI’s declaration of AGI, and Microsoft’s IP rights are limited to research through 2030 or until AGI is verified, excluding consumer hardware.
– The partnership is less exclusive, allowing OpenAI to collaborate with third parties and release open models, while Microsoft can independently pursue AGI, intensifying the AGI development race.
OpenAI has finalized its transition to a for-profit structure while simultaneously announcing a revised partnership with Microsoft. This significant corporate overhaul establishes a new public benefit corporation, the OpenAI Group PBC, while the original nonprofit entity is renamed the OpenAI Foundation. The foundation will hold a substantial equity stake in the for-profit arm, valued at an estimated $130 billion, and will initially direct a $25 billion fund toward initiatives in healthcare, disease research, and bolstering AI resilience. The nonprofit is also slated to receive additional ownership once the for-profit company hits certain, undisclosed valuation targets.
This restructuring concludes over a year of delicate negotiations with the attorneys general of California and Delaware, whose approval was essential for the move to proceed. The process was further complicated by a protracted legal dispute with Elon Musk, a co-founder of the original 2015 nonprofit research lab, who had filed lawsuits against the company and CEO Sam Altman in an effort to block the conversion. The final plan represents a shift from OpenAI’s initial proposal, which would have entirely removed the nonprofit from a governance role. Under the adopted model, the nonprofit parent will maintain an equity stake of up to $100 billion and retain a degree of oversight.
A central and still partially unresolved question is whether the nonprofit will continue to exert control over OpenAI’s core technology, particularly the future development of artificial general intelligence (AGI). AGI refers to systems with cognitive abilities that match or exceed human intelligence, a primary objective for OpenAI and its competitors, all of whom are pouring vast financial and human resources into its pursuit.
As part of this reorganization, a new agreement was forged with Microsoft. The tech giant’s ownership stake appears to have been slightly reduced; it previously held a 32.5 percent stake in the for-profit entity and now owns approximately 27 percent of the new public benefit corporation, a share valued at around $135 billion. The updated deal also addresses a major point of contention: the so-called “AGI clause.” Previously, Microsoft’s licensing rights to OpenAI’s technology would have terminated once AGI was achieved, a condition deemed too ambiguous. The new terms provide much greater clarity.
Crucially, a declaration of AGI by OpenAI will now require verification from an independent panel of experts, preventing OpenAI from making that determination unilaterally. Furthermore, Microsoft will not lose access to the technology post-AGI; its intellectual property rights for both models and products are now extended through 2032 and include models developed after AGI, provided appropriate safety measures are in place. However, Microsoft’s IP rights concerning OpenAI’s research are more limited, expiring in 2030 or when the expert panel confirms AGI has been reached, whichever comes first. These rights grant Microsoft access to confidential development methods for models intended for internal or research use. The pre-existing revenue-sharing agreement remains in effect until AGI is verified, though payments will be spread over a longer timeframe.
A notable new exclusion is that Microsoft’s IP rights do not cover OpenAI’s consumer hardware, meaning the proprietary technology behind the device being developed with famed Apple designer Jony Ive is not included in the deal.
The partnership’s exclusivity has been further relaxed. OpenAI now has the freedom to collaborate with third parties on certain products and to release some open-weight models. Microsoft no longer holds a right of first refusal to be OpenAI’s primary cloud computing provider. In a significant commitment, OpenAI is contracted to purchase an incremental $250 billion in Azure services.
The agreement also allows Microsoft to “independently pursue AGI alone or in partnership with third parties,” intensifying the race to achieve advanced artificial intelligence. Should Microsoft utilize OpenAI’s IP in its own AGI development, the resulting models will be subject to computational thresholds before an official AGI declaration is made. This effectively accelerates the competitive dynamics between the two entities.
Failure to announce the completed restructuring by the end of this year would have put a previously announced $10 billion investment from SoftBank at risk. The company is scheduled to host a livestream Q&A session featuring CEO Sam Altman and chief scientist Jakub Pachocki.
(Source: The Verge)
