Retreat to Advance? Microsoft "declares": If talks with OpenAI don't go well, then we won't talk

In negotiations with OpenAI regarding a future partnership worth hundreds of billions of dollars, software giant Microsoft has made it clear: if an agreement cannot be reached, they will walk away. This seems to confirm the saying: sometimes the best negotiation strategy is to be ready to leave the table at any moment.

On June 18, reports emerged that insiders revealed Microsoft is considering directly terminating the complex negotiation process if the two parties cannot reach consensus on key issues. These key disagreements include core interest distribution issues, such as what percentage of ownership Microsoft should have in OpenAI's future structure.

If the negotiations break down, Microsoft will rely on existing commercial contracts to maintain access to OpenAI's technology until 2030, unless OpenAI can offer equivalent or better terms. A person close to Microsoft stated:

"The current situation is acceptable for Microsoft; the company is very satisfied with the current contract and is prepared to execute it until 2030."

The current contract terms are extremely favorable for Microsoft: exclusive rights to sell OpenAI models and a 20% revenue share within a revenue cap of $92 billion.

$13 Billion Investment for How Much Equity? Intense Negotiations Between Both Parties

In the past year of negotiations, both parties have fiercely contested how much equity Microsoft should receive—discussing ownership percentages ranging from 20% to 49% as a return on its investment of over $13 billion.

Over the past year, both sides have engaged in intense exchanges over a core issue: how much equity should Microsoft receive in OpenAI after its investment of over $13 billion? The discussion has ranged from 20% to 49%.

According to the existing agreement signed when Microsoft first invested $1 billion in OpenAI in 2019, Microsoft has exclusive rights to access and sell OpenAI models and is entitled to a 20% share of revenues up to $92 billion.

Insiders indicate that Microsoft is unwilling to make concessions regarding continued access to OpenAI technology or revenue sharing. As one person who discussed the negotiations with Microsoft executives stated:

"The market cares about how much revenue Microsoft can earn... not how much equity it has in OpenAI; this deal will cause revenue to flow away from Microsoft. The question is, what return will Microsoft get for giving up these revenue rights?"

In addition to the equity negotiations, several core terms of the current contract are also being renegotiated, including Microsoft's exclusive rights to sell OpenAI software through Azure, priority in providing computing infrastructure for OpenAI, and access to AI intellectual property before achieving "general artificial intelligence."

OpenAI's Survival Dilemma: Year-End Deadline Approaches

For OpenAI, reaching an agreement with Microsoft is a matter of life and death. The company must obtain Microsoft's approval for its transition to a for-profit entity by the end of the year, or it risks losing billions of dollars in investor funding, including from SoftBank.

It is reported that in OpenAI's last two rounds of financing, investors agreed to a clause requiring the company to successfully transition to a for-profit entity; otherwise, their equity investments would convert to debt. If the transition process is delayed or abandoned, investors have the right to reclaim part of their investment. If the transition is not completed by the end of the year, SoftBank, which led the most recent round of financing, may cut its $30 billion investment by $10 billion. According to a report by The Wall Street Journal this week, OpenAI has even considered a "nuclear option"—accusing Microsoft of anti-competitive behavior in their partnership. However, a person close to OpenAI admitted, "refusing to cooperate is Microsoft's nuclear option... they are just trying to make OpenAI feel nervous."

Additionally, it is worth noting that Microsoft CEO Satya Nadella believes that leading AI models will become "commoditized." Based on this judgment, Microsoft has begun to diversify away from OpenAI models in recent months.

In May of this year, the software giant offered Musk's xAI model Grok to its cloud computing customers. A person close to Microsoft commented, "OpenAI is no longer necessarily the frontrunner."