On Monday, Microsoft and OpenAI announced that they have, once again, renegotiated the deal binds the two companies. Despite some views of X labeling it a win for maker ChatGPT over the Windows giant, both sides are walking away victorious.
More importantly, the new terms resolve an issue that has been hanging over OpenAI’s head since it signed the up to $50 billion deal with Amazon.
With this new agreement, instead of Microsoft having exclusive access to all of OpenAI’s products and IP until the magic day when OpenAI produces AGI, its partnership has a definitive timeline. This contract gives Microsoft a non-exclusive license to use OpenAI IP for models and products until 2032.
The two companies still call Microsoft OpenAI’s “major cloud partner,” meaning most of OpenAI’s cloud will likely be served by Azure for the six years covered by that deal, even as OpenAI scrambles to build its own data centers with other partners. In OctoberOpenAI has agreed to buy Microsoft’s $250 billion worth of additional cloud. That line is a message to Microsoft shareholders that OpenAI will still be a huge Azure customer.
OpenAI products will ship “to Azure first, unless Microsoft cannot and chooses not to support the necessary features,” the companies say. But, crucially, “OpenAI can now serve all of its products to customers on any cloud provider.”
Again, “first” isn’t clearly defined in this announcement, whether that means exclusivity on Azure only for a period of time or simply that Microsoft will also be among the vendors porting the latest OpenAI products.
But the most important part of this term: It settles the possibility of Microsoft suing OpenAI over its AI lab deal with Amazon.
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To recap this mess: In February, OpenAI announced that Amazon was investing up to $50 billion in the model maker, consisting of an initial investment of $15 billion and another $35 billion “in the coming months when certain conditions are met,” the companies said, without specifying what those conditions were.
In return, OpenAI agreed to jointly develop a “stateful runtime technology” on AWS Bedrock (the AWS service that serves various AI models and services). Stateful runtime is the technology that supports AI agents, allowing them to remember tasks and environments for long periods of time.
OpenAI also promised that AWS will have exclusive rights to serve OpenAI’s new agent creation tool, Frontier. And here’s the rub.
OpenAI’s original agreement with Microsoft prevented OpenAI from selling Frontier exclusively to AWS, and possibly prevented AWS from selling it at all.
While Microsoft previously agreed to allow OpenAI to run certain select products, such as ChatGPT for consumers, on other cloud providers, it has retained exclusive rights to any OpenAI product it accesses through APIs, such as Frontier.
In fact, on the same day that OpenAI announced its AWS deal, Microsoft publicly denied AWS’ exclusive terms, writing (emphasis on Microsoft):
Microsoft retains its exclusive license and access to intellectual property in OpenAI models and products. … Azure remains the exclusive cloud provider of stateless OpenAI APIs. … Any stateless API calls to OpenAI models that result from a collaboration between OpenAI and any third party — including Amazon — will be hosted in Azure. … OpenAI’s first-party products, including Frontier, will continue to be hosted on Azure.
Microsoft also emphasized that its terms stood until OpenAI succeeded in AGI. THE the Financial Times reported that Microsoft was even considering legal action if it had to enforce these contract terms.
Thus, the new agreement removes Microsoft’s exclusive rights and resolves AWS’s legal risk. In a post on X, Amazon CEO Andy Jassy celebrate the dealadding that it means OpenAI models will become available to customers on AWS Bedrock.
While this deal is good for OpenAI, Microsoft also scored some wins. The new agreement now allows Microsoft to stop paying revenue share to OpenAI, while OpenAI will continue to pay Microsoft revenue share until 2030, although this is now subject to a cap.
It’s hard to say exactly how much cash will flow into Microsoft, but it’s likely in the billions. Last quarter, Microsoft reported making $7.5 billion in a single quarter from its investment in OpenAI.
The bottom line is that Microsoft remains a major shareholder in OpenAI, owning about 27 percent of the for-profit entity, he said in October. It benefits financially from the development of OpenAI, even from the sales it makes on AWS.
The downside, of course, is that Microsoft loses out on any additional cloud services it could sell as a result of an exclusive deal with OpenAI.
This may not matter much. Just as OpenAI is courting Microsoft’s biggest rivals, Microsoft has a new, cozy relationship with OpenAI rival Anthropic for the cloud giant to use Claude AI to power reseller products.
The biggest winners here are enterprises, which can choose their models and clouds, while the giants compete with each other to serve them.
Here’s a timeline of recent changes to Microsoft’s relationship with OpenAI:
In October, Microsoft and OpenAI announced a new agreement to help OpenAI fend off Elon Musk’s lawsuit over its corporate structure that allows OpenAI to run products that don’t have access to APIs on other clouds.
In November, OpenAI and Amazon signed their first multi-year dealin which OpenAI agreed to AWS cloud worth $38 billion.
In February, Amazon was announced a Up to $50 billion investment in OpenAIpending “certain conditions,” including an exclusive technology development and hosting agreement for Frontier and Government Technology. On the same day Microsoft was denied that AWS will have this technology exclusively.
In Marchthe Financial Times published that Microsoft is considering legal action.
In April, OpenAI and Microsoft announced a new dealwhich includes a calendar end date for their exclusive partnership and allows OpenAI to run all of its products on other clouds. Microsoft no longer has to pay OpenAI’s revenue share. Microsoft remains a major shareholder in OpenAI.
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