OpenAI and Microsoft are breaking up but agree to remain friends for a while

OpenAI has updated its partnership with Microsoft. The new partnership agreement ends exclusivity and allows multi-cloud deals, while revising revenue terms.

In Short

• OpenAI ends exclusivity, opens doors to multiple cloud partners
• Microsoft remains primary partner but loses exclusive access rights
• Revenue-sharing model revised with new timeline and capped payments

OpenAI and Microsoft are changing their relationship status, and they are no longer exclusive to each other. Under the new arrangement, OpenAI is allowed to look for other partners. OpenAI CEO Sam Altman, via an X post on Monday, informed about changes in the partnership between OpenAI and Microsoft. Altman wrote that OpenAI has updated its partnership with Microsoft. Under the new arrangement, Microsoft will still remain OpenAI's primary cloud partner, but OpenAI is now allowed to offer its products and services to all clouds. Both companies have also made changes to their revenue-sharing arrangement.

The new arrangement between Microsoft and OpenAI comes at a time when OpenAI CEO Sam Altman is embroiled in a civil lawsuit with tech billionaire Elon Musk, who has accused OpenAI executives of benefiting financially from the company’s structural changes. The case has now moved to the trial stage, where the court is expected to look into OpenAI’s structure, funding, and partnerships, including its ties with Microsoft.

In addition, the new terms will also help OpenAI access more computing power and grow its enterprise business to better compete with Anthropic ahead of planned IPOs by both companies.

“We have updated our partnership with Microsoft. Microsoft will remain our primary cloud partner, but we are now able to make our products and services available across all clouds,” Sam Altman wrote in the X post.

Shift away from exclusivity

OpenAI has provided the first right of refusal to Microsoft for its AI products, and if Microsoft chooses not to support the necessary capabilities, OpenAI can now serve its products to customers across any cloud provider. This marks a big change in OpenAI’s long-standing partnership with Microsoft, where Microsoft had exclusive rights to use OpenAI capabilities.

The new arrangement will allow the AI company to look for more partners as OpenAI wanted the freedom to strike cloud deals with Microsoft’s rivals, according to Reuters. In an internal memo reported by CNBC this month, OpenAI said the Microsoft partnership had been foundational but had limited the startup’s enterprise reach. The memo added that demand since OpenAI launched on Amazon’s cloud had been staggering.

Meanwhile, Amazon was also quick to grab the opportunity. In a post on LinkedIn, Amazon CEO Andy Jassy said OpenAI’s models would be available directly to developers on Amazon Web Services in the coming weeks and that the two firms would share more details at an event in San Francisco on Tuesday.

Revenue-sharing model revised

The new arrangement has also made changes to the revenue-sharing agreement between the two. Earlier, it was tied to artificial general intelligence (AGI), a stage of AI where systems equal or surpass human intelligence across tasks. The revenue-sharing agreement was supposed to stay in place until AGI was declared.

However, OpenAI will now share its revenue with Microsoft until 2030. While the revenue-sharing percentage will remain the same (a 20% cut of OpenAI’s revenue), there is now also a cap on how much OpenAI pays overall. Microsoft will also no longer pay OpenAI a share of its revenue for offering OpenAI models on Azure, as reported by Reuters.

Licensing and ownership changes

Microsoft also has an exclusive license to OpenAI’s intellectual property for models and products through 2032. This change was introduced in their last partnership agreement revision in October last year, but now OpenAI says other partners are also eligible to join and Microsoft is not an exclusive license holder.

Meanwhile, in recent months, Microsoft has been working to reduce its reliance on OpenAI by developing its own AI models and rolling out those developed by Anthropic in its products, including the 365 Copilot for enterprises.

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