Microsoft Fears OpenAI May Turn to Amazon

The Uncertain Beginnings of the Microsoft-OpenAI Partnership

Recently released court documents have shed light on the tumultuous beginnings of the partnership between Microsoft and OpenAI. These revelations stem from the ongoing case involving Elon Musk and Sam Altman, CEO of OpenAI. They unveil internal discussions at Microsoft regarding the investment in OpenAI and concerns that the latter might turn to Amazon, a major competitor in the cloud computing space.

When OpenAI was experimenting with AI-powered gaming bots, Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman were forming a partnership in AI. Just days after OpenAI showcased a bot defeating a professional Dota 2 player in the summer of 2017, Altman responded to Nadella's congratulatory email with a proposal for a much larger partnership to fund OpenAI's next phase of AI research. OpenAI needed significant sums to expand its Dota 2 project, far beyond the Azure credits it was using at the time.

Financial and Strategic Stakes

OpenAI sought a $300 million investment, which initially alarmed some executives at Microsoft. "For these numbers to make sense, we would need to generate significant additional revenue directly attributable to the deal (over $500 million) that could not be obtained more efficiently," stated Jason Zander, who was then the head of Azure at Microsoft, in an August 2017 email to Nadella.

A few months later, Altman proposed an alternative to "create a partnership with Xbox around gaming, and an open offer to share their technology and intellectual property in exchange for expanded sponsorship for their Dota research," according to Brett Tanzer, now VP of Azure Solutions and Ecosystem. The Xbox team was interested in "exploring collaboration opportunities," but could not commit alone to the research costs.

Fears of Losing OpenAI to Amazon

Microsoft's CTO, Kevin Scott, then joined the debate on whether to grant OpenAI more Azure credits for its research in an email to Nadella in January 2018. He was unsure what Microsoft would "get out of [the deal]" and did not know how the Dota efforts would benefit the company, but he was definitely concerned that OpenAI might turn to Microsoft's largest cloud competitor.

"I suppose the other thing to consider here is the PR backlash of not funding them, and seeing them go to Amazon in anger and criticize our company and Azure on the way out," Scott stated in his January 2018 email. "They are building their credibility in the AI community very quickly, recruiting well, and are going to become an influential voice. All else being equal, I would like to see them become advocates for Microsoft and Azure. I'm not sure that alone is worth what they are asking."

A year later, Scott admitted in an email to Nadella and Bill Gates, co-founder of Microsoft, that he had been "very cavalier" about OpenAI's and Google DeepMind's AI efforts when the companies were competing to see who could pull off the most impressive gaming feat. Scott became much more impressed when OpenAI shifted towards natural language processing models and feared that Microsoft would fall behind Google’s AI efforts. A month after Scott's email about "OpenAI," Microsoft announced a $1 billion investment in OpenAI.

An Evolving Partnership

Nearly seven years after these discussions, the partnership between Microsoft and OpenAI has evolved. OpenAI recently renegotiated its agreement with Microsoft to integrate its AI models, such as Codex, on AWS. This change was announced shortly after OpenAI informed its employees of the limitations imposed by the agreement with Microsoft, particularly regarding access for companies using Amazon Bedrock.