OpenAI went from hot startup to hot mess in a New York minute last week. By now you know the story: The board fired CEO Sam Altman, his president and co-founder Greg Brockman followed him out the door, and his former employees are in full-on revolt.
For now, at least, it looks like Altman and Brockman have landed at Microsoft, and many of their former OpenAI employees could soon be following suit. While startups fall apart all the time, it doesn’t usually happen to those on such solid footing. This one came down to politics, and it got real ugly real fast.
The situation is still in flux, and nobody knows how this will ultimately end, but the different entities appear to be negotiating, at least for now.
Does it revert to status quo?
After all this drama, could everything go back to the way it was before the board fired Altman? It’s still possible, believe it or not. An OpenAI investor, who spoke with TechCrunch+ on background, hopes to see Altman return to OpenAI after all the dust settles.
“The goal remains the same: the board to go, and Sam and co to return, but it’s very dynamic. This is a high-powered stake among prominent investors and a ragtag board,” the person said. “Investors are keeping all options and potential remedies on the table against the board. The board does not have the legal capital to fight a major lawsuit against them.”
That investor is not alone. Matt McIlwain, managing director at Madrona, thinks the companies would be better off operating separately. “So it’s good for Microsoft to have some independence from OpenAI and also that OpenAI remains independent, especially since it has this additional missionary component to it,” McIlwain told TechCrunch+. “And so, I think that most of the parties around the table see that now. And I guess the question is, can they get there? I think they will,” he said, maybe even before Thanksgiving.
One thing is clear, however: If Microsoft absorbs the people behind OpenAI, even though the company already had an advantage via the partnership and investment in place, it would potentially make Microsoft a very hard player to beat in the AI space.
Ray Wang, founder and principal analyst at Constellation Research, calls the moves we have seen this week “the ultimate power play.” But he believes it comes down to a battle between folks who want to build AI ethically versus those who want to go faster, and the OpenAI board bungled the situation.
“What the OpenAI board ended up doing is unleashing an acceleration of the war between the folks who want to go fast and the folks [who] want to stick around and actually build ethical AI,” Wang said. And by doing so, they played into Satya Nadella’s hands.
“So now Microsoft doesn’t have to deal with ethical AI. Satya gets a $90 billion bump in his valuation very, very cheaply by bringing these two folks over, and he’s got 700 to 800 people ready to work for them [on this technology]. It is the ultimate coup.”
How much OpenAI tech can Microsoft use?
But what does this mean for OpenAI? It has a ton of intellectual property and potentially nobody to continue building it. Microsoft could have a slew of new employees who are bound by confidentiality agreements. It’s hard to parse.
Mark Kesslen, chair of the IP practice group at law firm Lowenstein Sandler, says it’s a complex situation, especially given the relationship that existed between Microsoft and OpenAI prior to this. While Kesslen has no direct knowledge of the contractual arrangements between the companies, he is an expert in IP law.
But the folks who would be coming over from OpenAI still know the ins and outs of the tech, even if they can’t bring the IP. “You can’t bring the work product, but you bring your knowledge and your skills, but that would be no different than if they ended up working for Google on Bard or at Anthropic. They’d have to start all new on their product without their IP.”
The complicating factor here of course is that Microsoft already has a relationship with OpenAI where they’ve been using each other’s IP. None of this changes that agreement, as far as we know. “So the mere fact that some of OpenAI employees went to Microsoft is interesting, but so long as OpenAI can continue to perform [under the terms of the agreement], I’m not sure there’s any breach of that agreement,” he said.
Box CEO Aaron Levie, whose company is an OpenAI customer, doesn’t think it will matter much to customers like him, however this plays out. “For what it’s worth, obviously OpenAI already had an incredibly tight relationship with Microsoft,” Levie told TechCrunch+. “So whether Sam and Greg go to Microsoft and kind of rebuild a version of OpenAI, or they go back to OpenAI, I think for the most part, the practical outcome is essentially the same for developers.”
What remains unclear while this plays out is the impact on investors. What will the fate of OpenAI the company be if everyone threatening to quit actually bails? That would leave investors with a startup with a ton of IP, but no employees to work on it.
Those assets would potentially have value in the marketplace, but not nearly as much as OpenAI had last Thursday before all this happened. While it’s hard to believe that practically the entire company could be absorbed by Microsoft in this fashion, it’s no stranger than how this whole story has unfolded to this point.
TechCrunch reporter Jagmeet Singh also contributed to this report.
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