Microsoft is prepared to abandon high-stakes negotiations with OpenAI over their multibillion-dollar partnership as the ChatGPT maker pursues conversion to a for-profit company, according to sources familiar with the discussions. The software giant has considered halting complex talks with the $300 billion AI startup if critical issues, including Microsoft's future stake size, remain unresolved.
The two companies had issued a joint statement emphasizing their "long-term, productive partnership" and expressing optimism about continuing to "build together for years to come." However, the Financial Times reports that Microsoft would rely on its existing commercial contract through 2030 if negotiations fail, unless offered terms equal to or better than current arrangements.
Revenue-sharing deal at center of dispute
Under their current agreement established in 2019, Microsoft holds exclusive rights to sell OpenAI's models and receives 20% of revenues up to $92 billion. The companies have battled over Microsoft's equity stake in a restructured OpenAI, with discussions ranging from 20% to 49% ownership in exchange for Microsoft's $13 billion investment.
OpenAI faces a year-end deadline to complete its corporate conversion or risk losing billions in investor funding, including a potential $10 billion reduction from SoftBank's $30 billion commitment. The transformation requires Microsoft's approval and faces legal challenges from Elon Musk and former OpenAI employees.
Diversification strategy emerges
Microsoft has begun diversifying beyond OpenAI models, reflecting CEO Satya Nadella's belief that leading AI models will become commoditized. The company recently made Musk's xAI model Grok available to cloud customers, signaling reduced dependence on OpenAI technology.
The partnership strain extends to computing infrastructure, with former Microsoft executives noting significant friction over OpenAI CEO Sam Altman's demands for faster access to more powerful systems. OpenAI has since signed deals with CoreWeave and Oracle for additional capacity, reducing its exclusive reliance on Microsoft's Azure platform.
One Microsoft-adjacent source suggested the company views the "status quo" as acceptable, questioning what Microsoft gains by surrendering revenue rights for equity ownership.
The two companies had issued a joint statement emphasizing their "long-term, productive partnership" and expressing optimism about continuing to "build together for years to come." However, the Financial Times reports that Microsoft would rely on its existing commercial contract through 2030 if negotiations fail, unless offered terms equal to or better than current arrangements.
Revenue-sharing deal at center of dispute
Under their current agreement established in 2019, Microsoft holds exclusive rights to sell OpenAI's models and receives 20% of revenues up to $92 billion. The companies have battled over Microsoft's equity stake in a restructured OpenAI, with discussions ranging from 20% to 49% ownership in exchange for Microsoft's $13 billion investment.
OpenAI faces a year-end deadline to complete its corporate conversion or risk losing billions in investor funding, including a potential $10 billion reduction from SoftBank's $30 billion commitment. The transformation requires Microsoft's approval and faces legal challenges from Elon Musk and former OpenAI employees.
Diversification strategy emerges
Microsoft has begun diversifying beyond OpenAI models, reflecting CEO Satya Nadella's belief that leading AI models will become commoditized. The company recently made Musk's xAI model Grok available to cloud customers, signaling reduced dependence on OpenAI technology.
The partnership strain extends to computing infrastructure, with former Microsoft executives noting significant friction over OpenAI CEO Sam Altman's demands for faster access to more powerful systems. OpenAI has since signed deals with CoreWeave and Oracle for additional capacity, reducing its exclusive reliance on Microsoft's Azure platform.
One Microsoft-adjacent source suggested the company views the "status quo" as acceptable, questioning what Microsoft gains by surrendering revenue rights for equity ownership.
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