Microsoft, OpenAI reach non-binding deal to allow OpenAI to restructure

Microsoft and OpenAI said on Thursday they have signed a non-binding deal for new relationship terms that would allow OpenAI to proceed to restructure itself into a for-profit company, marking a new phase of the most high-profile partnerships to fund the ChatGPT frenzy.

Details on the new commercial arrangements were not disclosed, but the companies said they were working to finalize terms of a definitive agreement.

This marks a step forward in OpenAI’s prolonged talks with Microsoft as the former seeks to raise capital under a more common governance structure and eventually go public to fund artificial intelligence development.

Microsoft invested $1 billion in OpenAI in 2019 and another $10 billion at the beginning of 2023. Under their previous agreement, Microsoft had exclusive rights to sell OpenAI’s software tools through its Azure cloud computing platform and had preferred access to the startup’s technology.

Microsoft was once designated as OpenAI’s sole compute provider, though it lessened its grip this year to allow OpenAI to pursue its own data center project, Stargate, including signing $300 billion worth of long-term contracts with Oracle, as well as another cloud deal with Google.

As OpenAI’s revenue grows into the billions, it is seeking a more conventional corporate structure and partnerships with additional cloud providers to expand sales and secure the computing capacity needed to meet demand.

Microsoft, meanwhile, wants continued access to OpenAI’s technology even if OpenAI declares its models have reached humanlike intelligence - a milestone that would end the current partnership under existing terms.

OpenAI said under current terms, its nonprofit arm will receive more than $100 billion — about 20% of the $500 billion valuation it is seeking in private markets — making it one of the most well-funded nonprofits, according to a memo from Bret Taylor, chairman of OpenAI’s current nonprofit board.

The companies did not disclose how much of OpenAI Microsoft will own, nor whether Microsoft will retain exclusive access to OpenAI’s latest models and technology.

Regulatory hurdles remain for OpenAI, as attorneys general in California and Delaware need to approve OpenAI’s new structure.

The company hopes to complete the conversion by year’s end, or risk losing billions in funding tied to that timeline.

Microsoft and OpenAI compete on products ranging from consumer chatbots to AI tools for businesses. Microsoft has also been working on developing its own AI models to reduce its dependence on OpenAI’s technologies.