Microsoft and OpenAI announced on Thursday that they have reached a preliminary understanding that would reshape the nature of their partnership.
The non-binding agreement is designed to give OpenAI the flexibility to reorganize into a for-profit company, a move that signals a new chapter in one of the most closely watched alliances fueling the artificial intelligence boom.
The exact terms of the revised business relationship have not yet been shared. Both companies confirmed they are working toward finalizing a binding agreement.
For OpenAI, the restructuring could pave the way for raising investment under a standard corporate governance model and eventually pursuing a public offering to fund large-scale AI initiatives.
Microsoft has been a major backer, contributing $1 billion in 2019 and a further $10 billion in early 2023. Under their existing arrangement, Microsoft had exclusive rights to distribute OpenAI’s software via Azure and enjoyed priority access to the startup’s models.
Related story: OpenAI Plans First AI Processor Launch in 2026 in Collaboration with Broadcom
Shifting Dynamics in Cloud and AI Development
At one point, Microsoft was OpenAI’s exclusive computing partner. That exclusivity softened this year, however, as OpenAI moved forward with its independent data center initiative, known as Stargate.
The company also inked long-term agreements worth $300 billion with Oracle and signed another cloud collaboration with Google.
With revenue now in the billions, OpenAI is pursuing a more typical corporate framework and broadening its network of cloud partners to both increase sales and secure additional computing power.
For its part, Microsoft aims to maintain access to OpenAI’s technology, even if the company declares its models have achieved human-level intelligence — a milestone that, under current rules, would terminate the existing deal.
OpenAI revealed that based on its current agreement, its nonprofit arm is set to receive over $100 billion, representing around 20% of the $500 billion valuation it is targeting in private markets.
As noted in a memo from Bret Taylor, chairman of OpenAI’s nonprofit board, this would make it one of the most heavily funded nonprofit organizations.
What remains unclear is how much of OpenAI Microsoft will ultimately control and whether it will retain preferential rights to OpenAI’s newest technologies.
Regulatory approvals are still pending. Attorneys general in California and Delaware must sign off on the company’s restructuring plan.
OpenAI is aiming to complete the transition before the end of the year to avoid losing billions in anticipated funding.
Meanwhile, competition between Microsoft and OpenAI continues across consumer AI products and business applications, with Microsoft also advancing its own models to lessen dependence on its partner.
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