Microsoft’s Partnership with OpenAI: A $13 Billion Bet with Huge Uncertainty

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Microsoft’s partnership with OpenAI could potentially bring billions of dollars in new revenue as workloads pile up in Azure. The company has reportedly invested $13 billion in OpenAI, with the startup’s valuation hitting roughly $29 billion. Microsoft is not only opening up its wallet for OpenAI, but it’s also the exclusive provider of computing power for OpenAI’s research, products and programming interfaces for developers. Startups and multinational companies are rushing to integrate their products with OpenAI, meaning massive workloads running on Microsoft’s cloud servers. Microsoft is integrating the technology into Bing search engine, sales and marketing software, GitHub coding tools, Microsoft 365 productivity bundle, and Azure cloud, which could add up to over $30 billion in new annual revenue for Microsoft, with roughly half coming from Azure.

However, the financial implications of Microsoft’s investment are complicated given OpenAI’s “capped-profit” model. OpenAI was founded in 2015 as a nonprofit, but the structure changed in 2019 when two top executives announced the formation of a capped-profit entity called OpenAI LP. After Microsoft’s investment is paid back, it will receive a percentage of OpenAI LP’s profits up to the agreed-upon cap, with the rest flowing to the nonprofit body. This setup restricts the startup’s first investors from making more than 100 times their money, with lower returns for later investors, such as Microsoft. It is an unfamiliar model in Silicon Valley, where maximizing returns has long been the priority of the venture community. Elon Musk, one of OpenAI’s founders and early backers, has expressed concerns about OpenAI’s unconventional structure and its implications for AI, particularly given Microsoft’s level of ownership.

Overall, aside from its investment, leaning on OpenAI has the potential to help Microsoft dramatically reverse its fortunes in AI, where it’s stumbled publicly and didn’t build a meaningful business on its own. However, the financial implications are anything but straightforward, given OpenAI’s unique capped-profit model. It remains to be seen how this partnership will play out in the long term, but it’s clear that OpenAI is a key player in the AI landscape and one that Microsoft is counting on to drive its future growth.

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Yustika Kusuma Putri, she is social media marketer from Indonesia. I currently work as a Media Manager in Technologie Omicrom Sendas inc.
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