OpenAI, Microsoft reportedly add $38bn cap to partnership

OpenAI and Microsoft have reportedly agreed to cap revenue-sharing payments at a massive $38 billion. The two tech giants are said to have formally renegotiated their contract last month.

This strategic shift is part of a broader restructuring that officially ends their exclusive partnership. OpenAI is now free to licence its popular and powerful AI models to any third-party company.

This includes direct competitors to Microsoft, such as the cloud divisions of Google and Amazon. It marks a significant new chapter for the hugely influential artificial intelligence organisation.

Under the amended, non-exclusive terms, Microsoft will no longer pay a revenue share to OpenAI. However, payments from OpenAI back to Microsoft will continue right through the year 2030.

For some, this payment cap is seen as a risk management strategy for Microsoft. It helps ensure a manageable and clear return on its very substantial investment in the AI firm.

For those unversed, their relationship began in 2019 with an initial $1 billion investment from Microsoft. This was followed by a larger and more significant $10 billion investment in 2023.

That landmark deal made Microsoft the exclusive seller of OpenAI's advanced technology to businesses. It also made its Azure cloud the sole platform for running the company's powerful models.

An insider explained the move could greatly help OpenAI's long-term financial outlook. The cap helps the firm present a stronger pitch to potential investors ahead of a public offering.

"Some executives said [an IPO] could take place as soon as the end of this year," one report noted. A clear financial path forward is seen as vital for attracting any future investors.

Microsoft had previously confirmed the payment structure in an April public statement. The firm said payments would continue at the same agreed-upon percentage rate as before.

The company's statement also noted the payments would be "subject to an overall cap". This is the $38 billion figure that has now been reported by inside sources.

Despite the significant changes, Microsoft remains a major shareholder in OpenAI. It also continues to be its primary cloud-computing partner for the foreseeable future.

OpenAI's cutting-edge products are still slated to ship first on the Azure platform. This is contingent on Microsoft being able to support the necessary capabilities of all new models.

The move reflects a broader trend of shifting alliances in the highly competitive AI landscape. Financial structures of AI firms are now under intense scrutiny across the entire industry.