Microsoft spends money, Musk turns against, Ultraman palace intrigue: OpenAI's billion-dollar power game

On June 18, foreign media reported that if OpenAI and Microsoft cannot reach an agreement on key issues, Microsoft is considering directly terminating the complex negotiation process. These key issues include core interest distribution matters, such as how much equity Microsoft should hold 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 provide equivalent or better terms.

A person close to Microsoft stated that the current contract terms are extremely favorable to Microsoft: including exclusive rights to sell OpenAI models and a 20% revenue share within a revenue cap of $92 billion.

The prospects of cooperation between Microsoft and this AI leader have been overshadowed, and OpenAI is currently facing many complex situations.

This inevitably brings to mind early last month when the OpenAI board announced the abandonment of its planned full-profit transformation. OpenAI board chairman Bret Taylor stated that this decision was made after listening to the opinions of community leaders and engaging in constructive dialogue with the attorneys general offices of two U.S. states.

Just a few months ago, OpenAI announced a restructuring plan to transition its profit-making department to a Public Benefit Corporation (PBC) to better attract investment.

Now, OpenAI's abandonment of the profit transformation may be due to facing numerous "external pressures." According to foreign media reports, since the launch of the transformation plan, OpenAI has faced accusations from co-founder Elon Musk on one hand and has also been under close scrutiny and investigation from government regulatory agencies on the other.

At the end of March this year, OpenAI stated that it would raise $40 billion in a new round of financing led by SoftBank Group. However, this round of financing carries a condition: the company must complete its transition to a profit-making entity by the end of the year, or the main investors have the right to reduce the financing amount.

Regulatory pressures and capital terms are constraining OpenAI's every decision like a tightening noose, and the ultimate outcome of the game between Microsoft and OpenAI may rewrite the power dynamics in the artificial intelligence industry.

Will Sam Altman Return to His Original Intentions?

In an open letter to all employees, OpenAI CEO Sam Altman emphasized: "OpenAI was founded as a non-profit organization, and it is now regulated and controlled as a profit-making entity, and this will continue to be the case in the future; this will not change."

However, since its establishment, there has been ongoing controversy regarding OpenAI's organizational structure, with the core focus being: Is OpenAI truly a profit-making entity?

Ten years ago, Altman, Musk, and others founded OpenAI, which has always been tasked with the significant mission of ensuring that AGI benefits all of humanity. At that time, the company's operating funds primarily relied on donations from Musk and others As AI research continues to advance, OpenAI increasingly realizes that the development of AI requires strong computational power as support. According to its estimates, from AlexNet in 2012 to AlphaGo Zero in 2018, the demand for computational power from the most advanced AI models has increased by 300,000 times.

At the beginning of OpenAI's establishment, its fundraising goal was set at $1 billion, but the actual donations received were only about 1/10 of that. In order to enhance its fundraising capabilities, OpenAI began to seek changes.

In 2019, the company established a for-profit subsidiary "OpenAI LP" for fundraising and attracted talent using startup equity, with most employees being transferred to the subsidiary. The original company entity was called "OpenAI Nonprofit," which continued to retain control of the company.

To ensure that OpenAI LP would not blindly pursue profits, the company specially designed a "profit cap limit" mechanism—setting the return cap for the first round of investors at 100 times their investment amount. Once the returns exceed this amount, the excess will belong to the OpenAI Nonprofit entity.

Although the company has repeatedly stated that all investors and employees have signed agreements clearly stipulating that OpenAI LP must always prioritize the obligations set forth in the company's charter, doubts about whether OpenAI is profit-oriented have persisted.

OpenAI's organizational structure chart Source: OpenAI official website

The turning point occurred in November 2023, when the OpenAI board suddenly announced that Sam Altman was removed from his position as CEO and was asked to leave the company, with the decision taking immediate effect. Although 24 hours after the announcement, the OpenAI board invited Altman to return, the temporary dismissal indeed shocked many industry insiders.

According to multiple foreign media reports, the core of the conflict was Altman's overly aggressive approach to the company's development, especially in commercialization, which led the board to believe he violated the founding mission of OpenAI.

Subsequently, the continued high investment forced OpenAI to accelerate the introduction of new investors, but its previous structure, where a nonprofit organization fully owned a "profit cap" limited liability company (LLC), clearly restricted investor returns.

By the end of 2024, OpenAI stated that it would transform its for-profit division into a Public Benefit Corporation (PBC) in Delaware. To the outside world, OpenAI seems poised to become a profit-making company.

According to foreign media reports, the reason investors are eager to push OpenAI to complete its for-profit transformation as soon as possible is to alleviate OpenAI's financial predicament of losing billions of dollars annually and to obtain more returns through equity. If the transformation is successful, the company will become an independent entity, and investors can exchange their convertible notes for equity in the profit-making entity Now, OpenAI, which has abandoned its transformation, plans to convert its LLC, originally a non-profit structure, into a Public Benefit Corporation (PBC), with a non-profit organization as the main shareholder. This means that while the company pursues profits, it must clearly define and commit to achieving one or more public benefit goals.

Altman explained that the choice of the PBC structure is because it "has become the standard profit structure for other AGI labs like Anthropic and xAI, as well as many mission-driven companies like Patagonia." This structure also "makes a lot of sense for OpenAI," allowing it to "do what companies of our scale need to do in a more understandable structure."

"Forced" to Abandon Profit Transformation

According to foreign media reports, OpenAI's abandonment of its profit transformation may be due to various "external pressures," one of which comes from Musk.

In February 2024, Musk sued OpenAI and Altman in a California court, accusing them of deviating from the non-profit mission of benefiting humanity established at the company's founding and instead pursuing profit maximization. Musk specifically mentioned OpenAI's close collaboration with Microsoft, condemning it for becoming a de facto closed-source subsidiary of Microsoft, which violated its original open-source commitment.

Subsequently, in August and mid-November, Musk filed multiple lawsuits against OpenAI and continuously posted tweets directly pointing to internal struggles within OpenAI, even publicly mocking Altman for only being able to "engage in palace intrigue."

In 2015, Musk participated in the founding of OpenAI as a co-founder. Three years later, seeing OpenAI lagging behind Google and Meta in product competition, Musk hoped to transition from chairman to CEO, personally leading product development, just as he did with Tesla.

However, Musk held only one seat on the board, and other directors opposed his appointment as CEO, instead supporting Altman to lead the company's operations.

Unable to accept this situation, Musk angrily resigned from the OpenAI board, citing "Tesla is also developing AI products, creating a conflict of interest." The $1 billion investment he had previously promised was actually only $100 million.

Since then, Musk has publicly opposed several of OpenAI's plans, especially the profit transformation.

In early April this year, OpenAI officially filed a counterclaim, accusing Musk of "harassment" and requesting the court to prohibit him from interfering with the company's operations through media attacks and false acquisition attempts. OpenAI accused Musk of disrupting its financing process through false acquisition offers and attempting to "delay OpenAI's development to buy time for xAI."

Although OpenAI has currently abandoned its plan to restructure as a profit-making company, Musk's lawyer stated that they would continue to pursue the lawsuit against OpenAI.

Opponents are not limited to Musk; several advocates, including Nobel laureates, law professors, and former employees, have called on the California Attorney General and the Delaware Attorney General (where OpenAI's headquarters and registration are located) to exercise their power to protect OpenAI's charitable mission and prevent its restructuring plans These individuals are concerned about the future direction once the developers of ChatGPT achieve their company goal—developing artificial intelligence that surpasses human capabilities—yet no longer feel responsible for the company's public mission of "avoiding serious harm from this technology."

It is reported that several other AI companies, including Anthropic and Musk's xAI, have chosen to register as public benefit corporations. However, OpenAI's current structure remains unique: its public benefit corporation is still controlled by a nonprofit board.

According to foreign media reports, Robert Weissman, co-chair of a U.S. civil society organization, has long criticized OpenAI's structure. He believes that the startup's plans are still unsatisfactory and that there seem to be no new restrictions to ensure that this for-profit entity can fulfill OpenAI's nonprofit mission of benefiting all humanity with powerful AI tools.

"This puts us in the current predicament: a nonprofit organization seemingly controls a for-profit entity but has no apparent constraints on the latter," Weissman stated.

Additionally, major competitor Meta has also opposed OpenAI's transformation. According to foreign media reports, Meta is independently developing a competitor to ChatGPT and limiting OpenAI's funding capabilities, which clearly aligns with its commercial interests.

OpenAI Has Not "Compromised"

Regarding OpenAI's transformation, major investor Microsoft has a nuanced stance.

Recent news indicates that during a critical period for OpenAI's restructuring, Microsoft, which has invested $13.75 billion, remains one of the investors with reservations. Analysts suggest that Microsoft's move is primarily to ensure that any adjustments to OpenAI's structure adequately protect its investment.

Furthermore, it has been reported that OpenAI is renegotiating financial cooperation terms with Microsoft. This crucial negotiation has dual objectives: to pave the way for OpenAI's future IPO plans and to ensure Microsoft gains access to cutting-edge AI models.

Altman stated that the transition from LLC to PBC "is merely to clarify OpenAI's structure so that a scaled company like OpenAI can do what it needs to do." However, this means it "must balance the dual objectives of shareholder interests and corporate mission-driven structure." Under this legal framework, OpenAI must incorporate nonprofit factors into its statutory considerations when developing AI products.

If OpenAI becomes a "regular company," then financing "might be more convenient." However, he emphasized that given OpenAI's mission, "we do not want to become a completely regular company, and we believe the current structure poses no pressure for financing."

Regarding the shareholding ratio of the nonprofit organization in the new public benefit corporation after abandoning the transformation, OpenAI board chairman Taylor refused to disclose. He only stated during a press conference that the board members of the PBC would be selected by the nonprofit organization, and it is likely that the current nonprofit board members of OpenAI will serve initially In the open letter, Altman also pointed out that OpenAI will still need "hundreds of billions of dollars, and ultimately possibly trillions of dollars" to bring its services to "all of humanity" in the future.

Therefore, a key point of this adjustment is the removal of the previously set profit cap, which is seen as OpenAI paving the way for a future IPO, with investors like Microsoft and SoftBank likely to gain more investment returns. According to foreign media reports, in previous rounds of financing, Altman continuously hinted to investors that the company would transform into a more traditional corporate structure.

It is worth noting that after announcing the abandonment of the transformation, Altman stated that he still believes OpenAI will receive a $30 billion investment from SoftBank, and that SoftBank will not freeze its remaining funds due to the structure. However, SoftBank representatives have not yet responded to requests for comment.

This tug-of-war over organizational form reflects the most essential dilemma in the artificial intelligence industry—when technological development requires astronomical funding support, and capital inevitably demands returns, how can one uphold the original intention of "technology for good"?

OpenAI's choice may provide a compromise answer: in the gap between LLC and PBC, using the reins of a non-profit organization to control the wild horse of commercialization.

As Altman stated in the open letter: "What we are building is not a company, but the future of humanity." This future requires not only the capital of Microsoft and SoftBank but also the idealistic vigilance of figures like Musk, and the wisdom of global regulators to balance innovation and risk.

Author of this article: Hu Shixin, Source: Shenwang Tencent News, Original title: "Microsoft's Investment, Musk's Fallout, Altman's Palace Intrigue: OpenAI's Billion-Dollar Power Game | Shenwang"

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