The Microsoft OpenAI partnership has generated a lot of attention over the last few years. When Microsoft initially invested $1 billion into the OpenAI startup in 2019, barely anyone took notice. The startup market was growing at a phenomenal rate. Plus, artificial intelligence attracted significant valuations from market analysts alongside aerospace and electric vehicle manufacturers.
Within a few years, however, the market changed drastically. Startup funding began disappearing after the pandemic, and many technology companies tightened their purse strings. However, AI seemed to be one of the few areas immune to economic issues.
Generative AI, in particular, has exploded into the spotlight, thanks largely to the rise of OpenAI. The company’s ChatGPT bot went viral, setting records for the fastest-growing user base of any app.
Unsurprisingly, Microsoft has since doubled down on its investment in OpenAI, becoming a more prominent player in the organization’s ecosystem.
Here’s what you need to know about the Microsoft OpenAI partnership and its evolution.
The Rise of OpenAI and Microsoft’s Investment
Originally, OpenAI was founded in 2015 as a nonprofit research organization. Multiple major names in technology contributed to the development of this new company, including Sam Altman, Elon Musk, Ilya Sutskever, Trevor Blackwell, and others.
In 2019, OpenAI transitioned from its “nonprofit” status, creating a “capped profit” entity known as OpenAI LP. This transition was met with skepticism by many people, including Elon Musk, who shared on Twitter (now X), that Open AI was always intended to be an open-source non-profit company. Still, the new business model enabled growth for OpenAI.
This meant the company could attract investments from venture funds, grant employees stakes, and attract the attention of businesses like Microsoft.
Microsoft was one of the first major companies to partner with OpenAI in 2019, investing $1 billion before ChatGPT was released. According to leaked emails, the reason for Microsoft’s investment was rising competition from Google. CEO Satya Nadella was concerned that Microsoft was “multiple years behind the competition” in AI and machine learning.
Once Microsoft has recouped its initial investment, it will receive a percentage of OpenAI’s profits up to an agreed-upon cap. This means that Microsoft’s ability to earn from its relationship with OpenAI is limited. However, the partnership benefits Microsoft in other ways.
The Microsoft OpenAI Partnership: Microsoft’s AI Journey
Ultimately, Microsoft’s biggest benefit of establishing a Microsoft OpenAI partnership has been the ability to accelerate its growth in the AI space. Soon after making its initial investment, Microsoft started working on new AI-powered updates to its ecosystem.
It introduced AI-powered updates to the Bing search and Edge browser and dove into its Microsoft Copilot project, creating various generative AI solutions for tools like Microsoft Teams, Outlook, and Microsoft Dynamics CRM.
Like most AI tools, Microsoft’s solutions have delivered mixed results. In its early stages, the Bing chatbot faced backlash for serving incorrect answers to users at launch and having “creepy conversations” with customers.
Still, Microsoft continued experimenting and building on its partnership with OpenAI. At the beginning of 2023, the company announced in a blog post that it was beginning the “third phase” of its long-term partnership with OpenAI.
As part of this “third phase” announcement, Microsoft shared it would be focusing on:
- Supercomputing at scale: Microsoft committed to increasing its investment in developing specialized supercomputing systems, to help enhance OpenAI’s independent AI research. They said they would also continue to build on Azure’s AI infrastructure to help customers develop their AI applications with OpenAI models.
- New AI experiences: The Microsoft team also said they would continue to deploy OpenAI’s models (such as GPT-4o) across their existing enterprise and consumer products. They’re also developing new experiences with OpenAI technology, such as the Azure OpenAI service, enabling developers to build their AI applications.
- Cloud services: Microsoft said it would be operating as OpenAI’s exclusive cloud provider. The Azure ecosystem powers all OpenAI’s workloads across API services, products, research, and beyond.
The Benefits of the Microsoft OpenAI Partnership
According to Microsoft, the focus of its collaboration with OpenAI isn’t exclusively on “making a profit.” The company says the partnership was forged around a shared ambition to responsibly transform and enhance cutting-edge AI research and democratize AI solutions.
OpenAI shared Microsoft’s sentiment in its blog post, noting that, over the years, Microsoft had helped the company build world-leading supercomputing systems powered by Azure.
Both OpenAI and Microsoft have benefited significantly from this partnership. OpenAI has emerged as one of the leaders in the generative AI landscape. In February 2024, OpenAI was valued at more than $80 billion, following a deal with various venture capital firms.
Using Microsoft’s infrastructure, OpenAI has advanced its GPT models even further, introducing multimodal capabilities with GPT-4o, improving the accuracy of its bots, and introducing new solutions for enterprise and business users.
Microsoft’s stock surged after it announced another major investment in OpenAI. In 2023, Microsoft stock rose by 57%. Plus, with a market cap of just over $3 trillion, Microsoft stands as one of the most profitable companies in the world.
Although Microsoft hasn’t fully disclosed the scale of its AI business, CEO Satya Nadella said in October 2023 that revenue from its Azure Machine Learning service had doubled for four quarters in a row. Plus, working with OpenAI has given Microsoft significant bragging rights, connecting it to the world’s leading AI chatbot, ChatGPT.
However, the Microsoft OpenAI partnership isn’t without its challenges.
Microsoft Insiders Raise Concerns
Various issues have emerged with the Microsoft OpenAI partnership over the last two years. First, Insider reports suggested that Microsoft’s collaboration with OpenAI harmed the company’s AI platform team. According to the team, progress on homegrown AI advances has been stifled, with Microsoft relying on OpenAI for almost all of its new tech.
The complicated relationship between Microsoft and OpenAI also led to the loss of one of the company’s top executives, who suggested that products like Azure Cognitive Search and the Azure AI Bot service were practically dead and buried.
Frank Shaw, a Microsoft spokesman, responded to these concerns, saying that Microsoft’s AI products and services still exist—but they’ve been rebranded or bundled with other solutions. Additionally, it’s worth noting that Microsoft started introducing new experimental large and small language models in 2024, which could indicate they’re hedging their bets with OpenAI.
Still, it’s not just concerns from Microsoft team members causing friction between Microsoft and OpenAI. This year (2024), the partnership has faced significant scrutiny from public shareholders and regulators.
Regulatory Concerns and Investigations
As Microsoft’s cumulative investment in OpenAI has swelled (to an estimated $13 billion), regulators have begun taking notice. After all, Microsoft isn’t just opening its finances to OpenAI. It’s also exclusively responsible for delivering the computing power OpenAI needs for its research.
As multinational companies, startups, and other innovators rush to integrate their solutions with OpenAI’s services, Microsoft is gaining significant business. According to an analyst from Wells Fargo, the relationship with OpenAI could lead to more than $30 billion in new revenue for Microsoft.
This prompted European Commission officials to state in January 2024 that it would look into antitrust concerns around Microsoft and OpenAI’s collaboration. Regulators need to ensure that the relationship between the two companies is “fair” in the context of the broader AI market.
Although the results of these investigations have yet to be revealed, they’ve already prompted Microsoft to take some drastic actions. In July 2024, Microsoft announced it was giving up its seat as an “observer” on OpenAI’s board, effective immediately. Although some analysts expected Apple to step up and take over a similar role, that didn’t happen.
Instead, OpenAI said it would regularly host meetings with Microsoft and other investors in the months ahead. It’s apparently taking a “new approach” to engaging and educating its strategic partners.
Is Microsoft and OpenAI’s Partnership Unfair?
Investigations into the fairness of the Microsoft OpenAI partnership are still ongoing at the time of this writing. Some industry leaders have shared their thoughts. For instance, the CEO of Sourcegraph, Quinn Slack, said he doesn’t think the partnership has given Microsoft a notable advantage.
He said that Microsoft hasn’t “locked OpenAI” into a partnership where the company exclusively does the tech giant’s bidding. Still, it’s fair to say that Microsoft, whether on the OpenAI board or not, has significant power over OpenAI. Without Microsoft’s infrastructure and investment, we likely wouldn’t have seen all the developments in OpenAI’s models.
On the other hand, OpenAI isn’t the only AI player, although it certainly gets the lion’s share of attention from tech enthusiasts. Google is developing its Gemini suite and supporting Anthropic as its exclusive cloud provider—similar to the relationship between Microsoft and OpenAI. This is another partnership that’s also sparked an investigation from European authorities.
Many startups and new companies are attempting to compete with OpenAI elsewhere, particularly as the organization continues to attract scrutiny. For instance, the nonprofit Center for AI and Digital Policies asked the Federal Trade Commission to stop OpenAI from introducing new commercial releases of the GPT-4 model.
Will Microsoft Acquire OpenAI?
Last year, before antitrust investigations began, many analysts were convinced that Microsoft would purchase OpenAI outright. Some people already assume that Microsoft does own the AI company.
However, according to its website, OpenAI remains an “entirely independent company.” Additionally, spokespeople from the company have highlighted that they have no plans to go public or be acquired.
At the same time, Microsoft and OpenAI seem to have been playing down their partnership since the anti-trust investigation began. As well as stepping down from the board, where Microsoft already had no voting rights, the company has also recently referred to OpenAI as a “competitor.”
In a SEC filing in August 2024, Microsoft listed OpenAI alongside Anthropic, Amazon, Meta, and Google as one of the core companies they’re fighting against, at least in the development of AI search solutions. This could signify that Microsoft is trying to distance itself from OpenAI to a certain extent. However, it could also be a play to reassure investors and regulatory authorities that Microsoft doesn’t have any controlling interest in the OpenAI company.
What’s Next for the Microsoft OpenAI Partnership
At this stage, what will happen next between Microsoft and OpenAI remains to be seen. In the last few years, both companies have relied heavily on each other to advance their AI roadmaps. However, Microsoft seems to want to avoid placing all its eggs in one basket.
Aside from investing in its own models, Microsoft has also begun partnering with other AI innovators. For instance, in March, Microsoft hired the co-founders of Inflection AI, to lead a new Microsoft AI division. This suggests that going forward, Microsoft will be investing more heavily in building an AI future that’s entirely separate from OpenAI.
We’ll have to wait and see whether Microsoft and OpenAI continue to expand their collaboration.
