Microsoft is the only real winner in the OpenAI debacle

Satya Nadella played this one perfectly

OpenAI is in the process of fully collapsing on itself, following the ousting of former CEO Sam Altman in a shocking board decision. Exactly why the board decided to fire Altman is still unclear, but it seems increasingly likely that it was more about power-play shenanigans than anything else. What is clear is that Microsoft, through quick action and decisive strategic leadership from CEO Satya Nadella, is poised to emerge the clear winner, regardless of the final shape of what OpenAI looks like.

After what seem likely to have been tense negotiations yesterday, Nadella announced that both Altman and OpenAI president Greg Brockman would be joining Microsoft as employees, with Altman running his own AI group within the company as a CEO. Since then, nearly 500 employees have also indicated that they will quit unless the board resigns and Altman and Brockman are reinstated, which would mean that the company is essentially gutted.

Everything is so fluid at this point, and so much changed materially over the course of the weekend from Friday afternoon until now, that it’s hard to say exactly what OpenAI or Microsoft’s new AI group will look like by the end of the day. But one thing is very clear — no one is better off now than they were before, with the sole exception of Microsoft.

The market agrees: Microsoft’s share price was up nearly five points early this morning in trading, reflecting investor confidence in the moves made by Nadella.

Microsoft already had a considerable ownership stake in OpenAI, thanks to multiple sizable investments. But the company also had other investors, and none of those stand to benefit from having the entire team decamp from the entity that was OpenAI to Microsoft’s wholly owned and controlled internal AI group. Sure, Microsoft might take a bath on its OpenAI investment — but the price is a small one to pay for a company with Microsoft’s resources, given the upside it stands to gain by essentially acqui-hiring OpenAI’s core technology team.

Already, Microsoft is providing much of the compute infrastructure for OpenAI technology. Now, it managed to get the engineering and strategy of OpenAI leadership but without having to contend with many of the regulatory hurdles that would’ve come from actually acquiring OpenAI: It’s much harder for entities like the EU competition Commission to challenge essentially just a number of high-level hires versus a proper merger.

We know for sure that Microsoft AI group under Altman will include Greg Brockman, as well as GPT-4 lead Jakub Pachocki; the former head of preparedness at OpenAI, Aleksander Madry; researcher Szymon Sidor and more. Whether that will ever include Open AI chief scientist Ilya Sutskever, who seems to have participated in the revolt against Altman to begin with, is an open question. Sutskever confirmed on Twitter that he isn’t going to Microsoft, but he has expressed regret on Twitter regarding his actions in a seeming attempt to reconcile with Altman and Brockman.

Again, everything is moving far too quickly to make any calls regarding the definite state of where things end up, but it would be odd for Nadella to make such a definitive announcement regarding Altman and Brockman joining Microsoft if that wasn’t mostly locked in. And the result of that is that Microsoft picked up early what it likely would’ve bought later at a much higher price, with much more regulatory red tape to cut through. Well-played Satya.