OpenAI's ambitious plans to restructure its operations and secure billions in fresh investment have hit a roadblock amid intricate discussions with its primary backer, Microsoft.
The protracted negotiations, which may stretch well into next year according to the Financial Times, focus on critical disputes that could reshape their alliance and influence the wider artificial intelligence sector. Following extensive regulatory review, the Ƶ's Competition and Markets Authority gave the green light to Microsoft's OpenAI partnership earlier this year, coming months after the US Federal Trade Commission voiced reservations.
Central to this fresh impasse lies a controversial provision within the companies' current agreement, as reported by . The clause permits the ChatGPT developer to sever Microsoft's access to intellectual property once it reaches artificial general intelligence (AGI) – characterised as a "highly autonomous system that outperforms humans at most economically valuable work".
Whilst Microsoft chief executive Satya Nadella seeks the removal of this provision, OpenAI remains determined to retain it, regarding the clause as significant bargaining power.
According to one insider briefed on the discussions who spoke to the FT, the provision serves as both "negotiating chit" and a form of "mutually assured destruction", given that any breakdown in talks could threaten a $10bn (£7.9bn) investment from Japanese investment house Softbank, which hinges on reaching an accord before year-end.
The two companies are currently at odds over API access, with Microsoft presently holding the exclusive right to host OpenAI's models on its Azure cloud service, thereby acting as a key gatekeeper for the technology. OpenAI is looking to broaden its partnerships to encompass competing cloud providers such as Google and Amazon Web Services (AWS).
This strategy could significantly enhance OpenAI's API sales revenue, which presently constitutes a quarter of its $12bn (£8.9bn) in annual recurring revenue. Negotiations are under way between the firms to reach a compromise that would permit OpenAI to cater to government clients not using Azure, but a more comprehensive agreement is yet to be reached.
The result of these discussions is pivotal for OpenAI's financial trajectory. A deal is required to finalise a corporate restructuring that would enable investors to hold equity in the company and pave the way for a potential IPO.
The outcome will also determine Microsoft's ultimate equity stake in a restructured OpenAI, anticipated to be between 30 and 35% following more than $13bn (£9.6bn) in investments.
Despite both companies expressing public optimism, ongoing disputes over IPA, revenue sharing, and the AGI clause could prolong the negotiations past the crucial deadline, thus delaying OpenAI's next growth phase.
