OpenAI breaks free from exclusive AI pact with Microsoft

Microsoft and OpenAI ended the exclusive deal, allowing OpenAI to work with other cloud providers like Amazon. Photo / Getty Images

Microsoft Corporation and OpenAI have agreed to drop the software giant’s exclusive right to sell the startup’s AI models, opening the door for the ChatGPT maker to pursue deals with cloud-computing rivals like Amazon.com Inc.

In exchange for ending that exclusivity – which helped boost Microsoft’s cloud sales in the early years of the AI boom – the world’s largest software maker will no longer pay a revenue share on OpenAI products it resells on its cloud.

The new pact is meant to simplify a complicated relationship that has been foundational to OpenAI’s rise and the broader artificial intelligence boom. OpenAI has since pursued deals with multiple cloud providers, including Amazon, to meet its growing computing needs to build and serve AI software to a wider audience.

“The greater predictability in the amended agreement strengthens our joint ability to build and operate AI platforms at scale while providing both companies the flexibility to pursue new opportunities,” OpenAI and Microsoft said in a statement.

The agreement clears the way to OpenAI’s models appearing on Amazon Web Services and other cloud-computing providers.

As part of an investment announced earlier this year, the Amazon unit said it was jointly developing products with OpenAI that would be hosted on AWS. Microsoft weighed legal action, on the view that the effort would almost certainly breach its exclusive rights to OpenAI’s intellectual property, the Financial Times reported last month.

Microsoft remains OpenAI’s “primary cloud provider” and new products from the startup will be made available first on Azure, Microsoft’s cloud unit.

Revenue share paid by OpenAI on sales of its products that it makes itself will be capped, the companies said. But until they reach that cap – which wasn’t disclosed – the revised deal brings more certainty that OpenAI will continue to send those cheques.

Microsoft will receive a revenue share from OpenAI through 2030, regardless of progress the startup makes toward its goal of building artificial general intelligence – a system capable of matching human capability across tasks. Under the prior agreement, revenue share payments were due to stop should OpenAI reach that milestone.

As part of OpenAI’s restructuring last year as a for-profit business, Microsoft received a 27% ownership stake in the AI startup. The software giant was a key holdout in OpenAI’s corporate overhaul as the two negotiated the complex terms of their partnership.

Microsoft’s relationship with OpenAI is set to be in the spotlight this week as the companies square off against Elon Musk in court. The billionaire has accused OpenAI of abandoning its founding principles by converting to a for-profit company with billions of dollars in support from Microsoft. He’s seeking as much as US$134 billion in damages from OpenAI and Microsoft.

Microsoft shares were down about 1% as the markets opened in New York this week. Amazon fell less than 1%.

“We do not believe this revised agreement should come as a major surprise to investors at this point,” analysts with Evercore ISI wrote in a note to clients. “Microsoft has increasingly signalled interest in a broader multi-model strategy, while OpenAI has clear incentives to expand distribution more broadly across the market.”

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