https://stratechery.com/2023/openais-misalignment-and-microsofts-gain/
I have, as you might expect, authored several versions of this Article, both in my head and on the page, as the most extraordinary weekend of my career has unfolded. To briefly summarize:
- On Friday, then-CEO Sam Altman was fired from OpenAI by the board that governs the non-profit; then-President Greg Brockman was removed from the board and subsequently resigned.
- Over the weekend rumors surged that Altman was negotiating his return, only for OpenAI to hire former Twitch CEO Emmett Shear as CEO.
- Finally, late Sunday night,
- Satya Nadella announced via tweet
- that Altman and Brockman, “together with colleagues”, would be joining Microsoft.
- This is, quite obviously, a phenomenal outcome for Microsoft. The company already has a perpetual license to all OpenAI IP ( short of artificial general intelligence ), including source code and model weights; the question was whether it would have the talent to exploit that IP if OpenAI suffered the sort of talent drain that was threatened upon Altman and Brockman’s removal. Indeed they will, as a good portion of that talent seems likely to flow to Microsoft; you can make the case that Microsoft just acquired OpenAI for $0 and zero risk of an antitrust lawsuit.
Microsoft’s gain, meanwhile, is OpenAI’s loss, which is dependent on the Redmond-based company for both money and compute: the work its employees will do on AI will either be Microsoft’s by virtue of that perpetual license, or Microsoft’s directly because said employees joined Altman’s team. OpenAI’s trump card is ChatGPT, which is well on its way to achieving the holy grail of tech — an at-scale consumer platform — but if the reporting this weekend is to be believed, OpenAI’s board may have already had second thoughts about the incentives ChapGPT placed on the company (more on this below).
The biggest loss of all, though, is a necessary one: the myth that anything but a for-profit corporation is the right way to organize a company.
OpenAI’s Non-Profit Model
OpenAI was founded in 2015 as a “non-profit intelligence research company.” From the initial blog post :
I was pretty cynical about the motivations of OpenAI’s founders, at least Altman and Elon Musk; I wrote in a Daily Update :
Whatever Altman and Musk’s motivations, the decision to make OpenAI a non-profit wasn’t just talk: the company is a 501(c)3; you can view their annual IRS filings here . The first question on Form 990 asks the organization to “Briefly describe the organization’s mission or most significant activities”; the first filing in 2016 stated:
Two years later, and the commitment to “openly share our plans and capabilities along the way” was gone; three years after that and the goal of “advanc[ing] digital intelligence” was replaced by “build[ing] general-purpose artificial intelligence”.
In 2018 Musk, according to a Semafor report earlier this year , attempted to take over the company, but was rebuffed; he left the board and, more critically, stopped paying for OpenAI’s operations. That led to the second critical piece of background: faced with the need to pay for massive amounts of compute power, Altman, now firmly in charge of OpenAI, created OpenAI Global, LLC, a capped profit company with Microsoft as minority owner. This image of OpenAI’s current structure is from their website :
OpenAI’s corporate structure
OpenAI Global could raise money and, critically to its investors, make it, but it still operated under the auspices of the non-profit and its mission; OpenAI Global’s operating agreement states:
Microsoft, despite this constraint on OpenAI Global, was not only an investor, but also a customer, incorporating OpenAI into all of its products.