Microsoft Probably Doesn't Own That Much of OpenAI Anymore (And That's Ok)

There's been a flurry of news coming out about Microsoft and its relationship with OpenAI ever since the ChatGPT maker raised an additional $6 billion in funding in early October. Publicly, Microsoft has been mum about its exact ownership in OpenAI, but news media, as well as analysts, are now offering a glimpse.

\ But first, the big picture.

\ Sam Altman, who has publicly spoken of the need to raise trillions of dollars, raised $6.6 billion in new funding for his startup at the start of October. There were already reports that OpenAI was looking to raise money, so the company's announcement did not come as a surprise at all.

\ What was surprising, however, was how somber the press release was. At three paragraphs long, OpenAI mentioned how much it raised ($6.6 billion), how much it was worth ($157 billion), and what it needed the money for (mostly corporate fluff about advancing its mission).

\ Inconspicuously missing was a mention of who participated in the funding, and how much, if at all, Microsoft invested in the company. And so of course, the news media was left to fill in the gaps. And fill the gaps it did.

\ According to reports, Thrive Capital put in most of the funds at $1.3 billion and negotiated an option to invest another $1 billion next year if OpenAI meets a certain revenue target. Thrive Capital is led by Josh Kushner, who is the brother of Donald Trump's son-in-law Jared Kushner.

\ Khosla Ventures, Fidelity, and Nvidia were also identified as investors in the funding round. And yes, so was Microsoft, which reportedly invested $750 million in OpenAI.

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Now, three quarters of a billion sounds like an impressive figure until you realize that this is perhaps the least amount of money Microsoft has invested in OpenAI in a single go. Microsoft invested $1 billion in OpenAI in 2019, and then another $10 billion in 2023, with a couple of other capital injections here and there.

\ In total, Microsoft has invested around $14 billion in the creator of ChatGPT, and it's no wonder that Sam Altman has described OpenAI's relationship with the Windows maker as the "best bromance in tech." Well, the best "bromance" in tech is coming to a rude awakening as both sides spar over how much equity Microsoft will receive as OpenAI shifts gears to a for-profit entity.

\ Regardless of how much Microsoft ends up owning, it's certain that it will be less than it used to be, and perhaps, this is by design. The company has never acknowledged how much of OpenAI it controlled, but media outlets pegged that number at 49%, just shy of an outright majority.

\ So when Microsoft announced even more investments in OpenAI, European regulators were considering reviewing whether such financing would trigger scrutiny under the bloc's merger rules.

\ That is now less likely to happen as Microsoft's stake is likely to have been diluted following OpenAI's October financing, bringing two key advantages: less regulatory scrutiny and a hedging of bets should things go south.

\ Microsoft really had no plans to withhold funds from OpenAI, but something changed after the whole leadership fiasco at the company in November 2023. Sam Altman's firing by the company's board raised a lot of eyebrows, and even as Microsoft Satya Nadella facilitated Altman's return to OpenAI, the seed of doubt had already been planted in the CEO's mind.

\ Today, The New York Times reports, relationship between OpenAI and Microsoft are "strained," with questions over the financial viability of OpenAI as it continues seeking both money and computing power to keep operating.

\ So does that mean Microsoft is stepping back? Not quite. Both sides have a symbiotic relationship in which OpenAI depends on Microsoft for cloud computing and Microsoft depends on OpenAI for artificial intelligence. But this interdependence is now causing friction as OpenAI thinks Microsoft charges too much for its service and Microsoft thinks it's too dependent on OpenAI for its technology.

\ "Microsoft could be left behind if it is only using OpenAI technologies,” Gil Luria, an analyst at the investment bank D.A. Davidson, was quoted as saying by the NYT. “It is a real race — and OpenAI may not win it."

\ Meanwhile, analysts at investment bank UBS say Microsoft's relationship with OpenAI may be its most strategic yet as the artificial intelligence startup expects to grow its revenue to $100 billion by 2029.

\ But that growth isn't going to come without its cost, and where will that money go? To Microsoft. Since a vast majority of OpenAI training and inference is run on Azure. So the more OpenAI earnings, the more it spends, and the more Microsoft makes, even if its stake is not as high as it used to be.

\ And even with Sam Altman contracting Oracle for some of his company's computing needs, Microsoft still benefits since it just now needs to spend less on developing the data centers needed to power OpenAI.

\ So if you ever thought that the artificial intelligence story was anything other than an attempt by big companies to empower themselves, here's your wakeup call. It just might be about the money ????????????

\ Microsoft ranked #4 on HackerNoon's Tech Company Rankings this week.

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In Other News.. ????

• No, Polymarket Whales Aren't Evidence of Prediction Market Manipulation — via CoinDesk
• Notion’s email product is nearing launch — via TechCrunch
• Elon Musk says he’ll fix the government under Trump. His track record paints a different picture — via CNN
• Nvidia CEO Jensen Huang gets rock star treatment from India's tech enthusiasts — via Reuters
• Meta's new facial recognition helps recover accounts, spot fake ads — via Axios
• Why Meta and Snap are spending billions on AR glasses— via CNBC

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And that's a wrap! Don't forget to share this newsletter with your family and friends! See y'all next week. PEACE! ☮️ \n

— Sheharyar Khan, Editor, Business Tech @ HackerNoon

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