Microsoft and OpenAI: The End of an Exclusive Partnership on AGI

A Redefined Partnership Between Microsoft and OpenAI

The partnership between Microsoft and OpenAI, once focused on artificial general intelligence (AGI), has undergone a major transformation. The initial agreement, which included an AGI clause dictating the terms of their collaboration, has been officially revised. Now, OpenAI can offer its services through any cloud provider while maintaining Microsoft as its primary cloud partner.

On Monday morning, Microsoft announced several significant changes regarding its long-standing agreement with OpenAI. Although Microsoft remains OpenAI's "primary cloud partner," the latter's products will first be available on Azure, unless Microsoft cannot or chooses not to support the necessary capabilities. However, OpenAI now has the freedom to "serve all its products to customers on any cloud provider." This revision paves the way for potential collaborations with giants like Amazon or Google and aims to lift the restrictions on computing capacity that have caused tensions with Microsoft.

Opening Up to New Horizons

This revision of the agreement allows OpenAI to potentially collaborate with other cloud giants like Amazon or Google. This strategic opening is crucial as OpenAI considers going public. Furthermore, Microsoft will continue to receive a share of the revenue generated from these new agreements, although the precise details of this participation remain to be clarified.

Perhaps more significantly, the two companies have removed the "AGI clause" from the contract, which established various conditions if either of them were to achieve AGI. This term, poorly defined in the industry, generally refers to AI systems that match or surpass human intelligence across a wide range of tasks.

The Removal of the AGI Clause

The AGI clause, which provided specific conditions in the event of achieving AGI, has been eliminated. Now, OpenAI's revenue-sharing payments to Microsoft will continue until 2030, but with a total cap. This change marks the end of an era where AGI was a central contractual goal.

This change impacts a revenue-sharing agreement that was supposed to remain in place until AGI was declared. Now, OpenAI's revenue-sharing payments to Microsoft will only continue until 2030—and while they will continue "at the same percentage," they will also be "subject to a total cap" instead of continuing indefinitely. Payments will continue and will end "regardless of OpenAI's technological progress," which logically includes AGI. Thus, this agreement is now obsolete.

Implications for Intellectual Property

Before this revision, Microsoft would have lost its rights to OpenAI's technology if AGI had been achieved. However, Microsoft's rights to OpenAI's models and products are now extended until 2032, although they are non-exclusive. This opens the door for other players to enter the market.

This is the second renegotiation of this clause. When OpenAI completed its controversial for-profit restructuring in October, it needed Microsoft's approval—and as part of that approval, the two companies entered into a new agreement. Before the contract changes in October, Microsoft would have lost its rights to OpenAI's technology once the latter achieved AGI. But Microsoft's intellectual property rights over OpenAI's models and products have been extended until 2032—and these rights included models even after an independent panel theoretically declared that AGI had been achieved.

Today, there is no longer an independent panel, no conditional language to determine if or when AGI is declared, and OpenAI may never have to announce if it reaches this milestone. Microsoft's license on OpenAI's models and products, which it holds until 2032, is now non-exclusive. Any other competitor can now enter the fray.

Microsoft previously held about 27% of OpenAI on a fully diluted basis, including all owners. The new terms stipulate that Microsoft continues to participate directly in OpenAI's growth as a major shareholder, but do not specify Microsoft's ownership stake, although there is no indication that it has changed.

Towards Increased Profitability

There is strong pressure for OpenAI to move closer to profitability, and it, along with its competitors, has burned through a lot of investor cash in their quest to acquire more computing power and achieve AGI. OpenAI has stated that it is fully focused on business and coding to pursue these larger potential revenue drivers, and it has methodically eliminated so-called "side quests" like Sora and the planned erotic features for ChatGPT. It has also restructured its scientific department. The new agreement with Microsoft is another step in this direction.