Microsoft is prepared to walk away from negotiations with OpenAI if they fail to reach an agreement on changes to their partnership, the Financial Times reported, citing people familiar with the plans.
The talks center on OpenAI’s shift from a non-profit to a for-profit structure, which would allow it to raise more funding and pursue a public listing.
The companies are discussing how much equity Microsoft should receive in exchange for its more than $13 billion investment. The range has been between 20 and 49 percent.
If no deal is reached, Microsoft plans to rely on its existing contract, which gives it access to OpenAI’s technology through 2030 unless a better offer comes along.
Both sides say they are meeting daily to work out a solution. “We have a long-term, productive partnership that has delivered amazing AI tools for everyone,” Microsoft and OpenAI said in a joint statement. “Talks are ongoing and we are optimistic we will continue to build together for years to come.”
The current agreement, signed in 2019, gives Microsoft exclusive rights to sell OpenAI’s models and a 20 percent share of revenue up to $92 billion. The two companies are now reviewing that contract, including Microsoft’s rights to sell through Azure, its right of first refusal on providing infrastructure, and early access to OpenAI’s intellectual property before reaching artificial general intelligence, a clause expected to be removed, according to the Financial Times.
OpenAI needs Microsoft’s approval to finalize its restructuring. Without it, the company could lose billions in funding.
SoftBank, which led the most recent round, may cut its $30 billion investment by $10 billion if the transition is not completed by the end of the year.
Investors in OpenAI’s last two funding rounds have agreed that their equity will convert to debt if the change isn’t completed. Though delays may occur, people close to OpenAI believe investor commitments will hold.
Microsoft appears satisfied with the current terms. One person said the company is “happy with the current contract” and could continue with it through 2030.
Another said Microsoft is focused on maintaining revenue from OpenAI’s models rather than increasing its equity stake.
Microsoft has started moving away from depending solely on OpenAI. In May, it began offering Elon Musk’s xAI model Grok to its cloud customers.
CEO Satya Nadella has said top AI models may become commoditized, with more value in building applications on top of them.
OpenAI CEO Sam Altman and CFO Sarah Friar have said the company lacks enough computing power to run ChatGPT, train new models, and release products. ChatGPT now has 500 million weekly users.
Former Microsoft executives say infrastructure demands have strained the relationship.
Any new agreement will need approval from attorneys general in California and Delaware. The restructuring also faces a legal challenge from Musk, supported by some former OpenAI employees.
Microsoft is prepared to keep the current deal in place unless a new offer improves its position. A Silicon Valley source close to Microsoft said the company sees the negotiations as OpenAI’s responsibility to resolve.
