AI: Microsoft & OpenAI, it's complicated. RTZ #705

The most iconic partnership of this AI Tech Wave, Microsoft & OpenAI, is showing more signs of stress. The Tango is seeing some missed steps together.

The general contours of this misalignment are not new, as I’ve discussed before. But the stress points may be getting a bit more severe, and potentially accerating on the misalignment. And that is worth noting.

The WSJ outlines it in “Altman and Nadella, Who Ignited the Modern AI Boom Together, Are Drifting Apart”:

“The OpenAI and Microsoft CEOs helped each other become power players in generative AI but are now preparing for independent futures”.

• “Microsoft and OpenAI’s partnership, once strong, is now strained due to disagreements over computing power and access to the startup’s models”.

• “One area of tension is OpenAI’s development of models with humanlike intelligence, functionality Altman has said his team can build soon, but that Nadella has downplayed”.

• “OpenAI and Microsoft have power over each other’s future plans”.

The arc of the relationship has been notable in just a few short years:

“Microsoft turbocharged the artificial-intelligence startup’s growth over the past six years with billions of dollars in funding, helping OpenAI’s ChatGPT accumulate more than 500 million weekly users. OpenAI powered cutting-edge generative AI tools for the technology giant, helping its share price triple.”

“That relationship has become strained. The chief executive officers are increasingly at odds over the computing power Microsoft provides to OpenAI, the access the startup gives the technology giant to its models and whether the Altman-led company’s AI systems will soon achieve humanlike intelligence, according to people familiar with their relationship. Microsoft CEO Satya Nadella has also made it a priority to beef up sales and usage of ChatGPT rival Copilot, and last year hired a rival of Altman’s who launched a secret effort to build models for Microsoft that would reduce its dependence on OpenAI.”

“While they are preparing their companies for independent futures, both still wield tremendous power over one another at a critical moment in the global AI race.”

“Microsoft can effectively block OpenAI’s effort to restructure into an independent for-profit company, according to people familiar with the matter. OpenAI could lose tens of billions of dollars if the conversion doesn’t happen by the end of this year. Microsoft hasn’t to date threatened to do so, a person familiar with the matter said.”

“OpenAI’s board, meanwhile, can trigger a clause in its contract that prevents Microsoft from accessing its most cutting-edge technology, people familiar with the matter said. OpenAI officials have raised the possibility of doing so over the past year, some of the people said.”

The whole piece is worth reading in detail. Especially the origin story of this remarkable partnership, and the latest details of the increasingly misaligned incentives.

Both companies are likely to do well in this AI Tech Wave, even if the separation accelerates.

And the forces driving this state of affairs are not unusual in fast changing technology waves.

But the events do open up other possibilities for each company, a topic I’ll likely have more to say about in future posts. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)