OpenAI's restructuring may be delayed until next year, as negotiations with Microsoft have hit a critical impasse

OpenAI's internal restructuring has yet to be completed, primarily due to unresolved significant differences between OpenAI and Microsoft, which may delay OpenAI's reorganization plan until next year.

On August 27, media reports indicated that OpenAI is engaged in complex negotiations with its largest backer—Microsoft—to amend a commercial contract originally set to last until 2030. If an agreement can be reached, OpenAI will be able to advance its restructuring plan, allowing investors to directly hold equity in OpenAI.

The purpose of this restructuring is to shift investors from a "profit-sharing model" to an "equity-holding model," paving the way for a future IPO. However, this must first resolve the old agreement with Microsoft. Insiders revealed that the two parties still have differences on some key issues, which may delay negotiations until after December 31 of this year. If an agreement cannot be reached within the year, SoftBank may have the right to cancel its promised $10 billion investment, and other financing for OpenAI will also be hindered.

As OpenAI's largest investor and technology partner, Microsoft's old contract (lasting until 2030) has now become the biggest obstacle to OpenAI's further financing and IPO preparations.

OpenAI Wants to "De-Microsoft," but Negotiations Are Tough

The negotiations between OpenAI and Microsoft mainly revolve around three key issues.

1. API Access Rights: OpenAI No Longer Wants to Rely Solely on Azure

Microsoft currently holds exclusive hosting rights to OpenAI's models, meaning that OpenAI's models can only be deployed on Microsoft's Azure cloud services. This effectively hands over control of API sales and deployment to Microsoft, which now contributes about 25% of OpenAI's annual revenue.

OpenAI hopes to establish partnerships with other cloud platforms like Google Cloud and Amazon AWS, similar to its competitor Anthropic, to diversify its API revenue sources. Insiders have indicated that this could help OpenAI expand its API sales revenue.

However, Microsoft is unwilling to relinquish this exclusivity, as allowing competitors to participate would be detrimental to its interests. According to one insider, the two parties are negotiating a limited agreement that may allow OpenAI to provide services only to government clients that do not use Azure as a compromise.

2. Intellectual Property (IP) Access Rights: Microsoft Wants to See the "Method"

Microsoft wants not only to use OpenAI's future AI models but also to understand their "training methods," i.e., how the models are developed. The two parties are still debating this issue.

1. AGI Clause: OpenAI's "Last Resort"

There is also a special clause in the agreement that grants OpenAI the right to cut off Microsoft's access to its intellectual property (IP) once OpenAI achieves AGI (Artificial General Intelligence) According to informed sources, Microsoft CEO Satya Nadella wants to cancel this clause because it is uncertain and unfavorable. However, OpenAI hopes to retain this clause as it can become a strong bargaining chip in negotiations with Microsoft.

The resolution of these key issues will directly affect how much equity and control Microsoft will ultimately hold after the restructuring of OpenAI.

Microsoft currently expects to hold 30% to 35% of OpenAI's equity, depending on the outcome of negotiations between the two parties. So far, Microsoft has invested over $13 billion in OpenAI. However, this shareholding ratio may still change. Sources indicate that although negotiations are ongoing, reaching an agreement remains the most likely outcome, though this process may extend until the end of this year or even longer.

OpenAI and Microsoft stated in a joint announcement:

“We have a long-term and productive partnership that has brought excellent AI tools to everyone. Negotiations are ongoing, and we are confident about continuing our collaboration in the coming years.”

However, there are other obstacles to overcome before OpenAI can successfully restructure. Even if the contractual issues between OpenAI and Microsoft are resolved quickly, they still need to communicate further with other shareholders, as well as with the attorneys general of California and Delaware (since OpenAI is registered and operates in these two states).

According to informed sources, the current negotiations are led by the chief financial officers (CFOs) of both parties: Sarah Friar from OpenAI and Amy Hood from Microsoft. If negotiations go smoothly and an agreement is reached, OpenAI's investors will be able to truly hold equity in the company, rather than just participating in a profit-sharing structure as they do now.

"Microsoft Tug-of-War" Will Affect OpenAI's Financing

OpenAI recently completed two rounds of financing, one in October last year, with a valuation of $157 billion. The other round was in March this year, led by SoftBank, with a valuation reaching $300 billion. However, these financings come with the condition of "withdrawal without restructuring," meaning that if OpenAI fails to complete its corporate restructuring within a specified time, some investors have the right to withdraw their investments or refuse to pay the committed funds.

If it drags past the end of 2025, SoftBank can cancel its committed $10 billion investment, which poses a threat to OpenAI's financing plans. However, OpenAI executives believe that even if negotiations are stalled, SoftBank is unlikely to withdraw its investment, and they are confident that the company can continue to raise funds without completing the structural transition, as OpenAI's business has grown rapidly since SoftBank committed to leading a $40 billion financing.

Currently, OpenAI is negotiating new secondary market share transfers, with an expected valuation reaching $500 billion, which means that SoftBank's investment will achieve a paper profit of two-thirds. According to informed sources, OpenAI has also received interest from other investors willing to participate in primary financing, and the valuation may even exceed $500 billionDespite the ambiguous areas in its internal governance structure, OpenAI's popularity in the capital market has not diminished at all. The $8.3 billion financing completed in March (part of a financing led by SoftBank) was still significantly oversubscribed, indicating extremely high market enthusiasm.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at one's own risk