Microsoft and OpenAI are taking their partnership to the next level, aiming to drive the future of artificial intelligence. Since 2019, the two companies have been working together, and yesterday’s announcement strengthens their collaboration through 2030.
The key elements of the partnership between Microsoft and OpenAI are multifaceted and strategically significant. Microsoft holds exclusive rights to OpenAI’s intellectual property, including models and infrastructure, which are integrated into its products like Copilot. This exclusivity ensures that customers have access to the best AI models available.
Additionally, OpenAI API is exclusive to Azure, runs on Azure, and is available through the Azure OpenAI Service, allowing customers to benefit from leading AI models on Microsoft platforms and directly from OpenAI.
The partnership also includes revenue sharing agreements that benefit both companies from the increased use of new and existing models. Microsoft remains a major investor in OpenAI, providing funding and capacity to support their advancements while benefiting from their growth in valuation.
Furthermore, OpenAI has made a new, large Azure commitment to support all OpenAI products and training. This includes changes to the exclusivity on new capacity, moving to a model where Microsoft has a right of first refusal (ROFR).
While that may all sound like OpenAI is further tied at the hip to Microsoft, the new arrangement allows for the AI company to seek build out capacity using other cloud service providers, albeit for mostly research and model training that ultimately benefits Microsoft.
Microsoft and OpenAI are also partnering on Stargate, a project to build new AI infrastructure across the USA over the next four years. This investment, worth $500 billion, is set to create 100,000 new jobs and revolutionize the AI landscape. With lead partners like OpenAI, SoftBank, Oracle, and MGX, and using chips designed by Nvidia, this project is poised to be a game-changer.
Interestingly enough, the announcement comes a few days after the FTC issued a report about the dangers of tech companies cozying up to AI businesses.
The FTC’s report highlights potential competitive issues that could arise from such collaborations between big tech companies and generative AI developers. Specifically, the FTC pointed out that Microsoft’s substantial investment in OpenAI, amounting to $13 billion, could provide the tech giant with an unfair advantage in the rapidly expanding AI market, in part to the exclusivity deals it manages.
The report suggests that these partnerships could lead to several competitive challenges. One major concern is the potential for big tech companies to gain undue control over AI startups, which could stifle innovation and competition. The FTC also noted that such deals might result in increased switching costs for companies working with AI developers, making it harder for them to collaborate with multiple cloud providers.
Additionally, the FTC highlighted the risk of big tech companies gaining access to sensitive technical and business information from AI startups. This access could give them a unique advantage in developing their own AI models and services, further skewing the competitive landscape.
Microsoft’s partnership with OpenAI has been particularly scrutinized due to the exclusive rights included in their agreements. These rights could discourage AI companies from partnering with other cloud providers, thereby limiting competition and innovation in the AI sector.
In response to the FTC’s concerns, Microsoft has defended its partnership with OpenAI, stating that it has enabled one of the most successful AI startups in the world and spurred unprecedented technology investment and innovation in the industry.
However, the FTC’s report serves as a stark reminder of the need for vigilance in ensuring that such partnerships do not undermine fair competition and open markets.
It should also be noted that Microsoft was among the collective that donated a million dollars to Trump’s inaugural fund, most likely to curry favor in a less litigious FTC area where this new announcement may fly under the regulatory radar.
