Are Microsoft and OpenAI becoming full-on frenemies?

Hello and welcome to Eye on AI!

Microsoft and OpenAI have long had a complex, codependent relationship that always makes me want to sing Avril Lavigne (“Why’d ya have to go and make things so complicated?”).

It all began with Microsoft’s $1 billion investment in OpenAI in 2019 and ramped up with its $10 billion commitment in 2023, much of which is in the form of cloud compute purchases instead of cash. In exchange, Microsoft got the right to reuse OpenAI’s models and became a minority holder specifically in the profit-making part of OpenAI’s business which, in turn, is “legally bound to pursue the Nonprofit’s mission.”

That arrangement gives OpenAI some unusual powers. According to OpenAI, its nonprofit board will determine when the company has “attained AGI,” or artificial general intelligence—the point at which AI finally outperforms humans at "economically valuable work." Once the board decides AGI has been reached, such a system will be “excluded from IP licenses and other commercial terms with Microsoft." Translation: Once OpenAI achieves its stated mission of reaching AGI, Microsoft will presumably not have access to or be able to profit from OpenAI's AGI-level technology.

Issues around OpenAI’s nonprofit board came to a head when it suddenly fired CEO Sam Altman—and then quickly reinstated him—in November 2023. Before his ouster, Altman said he and Microsoft CEO Satya Nadella were “nowhere near the frenemy territory,” saying the relationship was “really good.”

But recent developments leave me wondering whether the Big Tech behemoth and the $80 billion startup are becoming full-on frenemies. After all, Nadella was blindsided by Altman’s ouster, learning of it just minutes before the rest of the world. And on a joint episode of the Pivot and On with Kara Swisher podcasts during the Altman drama, he said, “One thing, I’ll be very, very clear, is we’re never going to get back into a situation where we get surprised like this, ever again.… That’s done.”

These days, Microsoft is clearly hedging its bets: Less than two months ago, Microsoft announced it was forming a new organization, called Microsoft AI, with Mustafa Suleyman, founder of DeepMind and cofounder of Inflection AI, as its CEO. Microsoft also paid $650 million for the rights to Inflection’s intellectual property. And yesterday, The Information reported that Microsoft is readying a new, massive, state-of-the-art AI model to compete with OpenAI (as well as Google and Anthropic). The new model, internally referred to as MAI-1, is being overseen by Suleyman.

Meanwhile, OpenAI’s Altman appears less focused on the part of the business that benefits Microsoft, and more on the company’s relentless pursuit to reach AGI. Addressing students at Stanford University last week, he honed in on his belief that any cost in support of that mission is justified.

“There is probably some more business-minded person than me at OpenAI somewhere worried about how much we’re spending, but I kinda don’t,” he said. “Whether we burn $500 million a year or $5 billion—or $50 billion a year—I don’t care, I genuinely don’t,” he continued. “As long as we can figure out a way to pay the bills, we’re making AGI. It’s going to be expensive.”

Whether Microsoft will keep investing in OpenAI towards that mega-cost, ill-defined mission remains to be seen. After all, according to an internal email released last week as part of the ongoing U.S. Justice Department antitrust case against Google, Microsoft initially invested in OpenAI in 2019 because it was “very worried” that Google was years ahead in scaling up its AI efforts.

“We are multiple years behind the competition in terms of machine learning scale,” Microsoft’s CTO Kevin Scott wrote in the 2019 email to Nadella and Microsoft founder Bill Gates.

Now, of course, Microsoft is seen as a clear AI leader. Nadella, for his part, appears to be shrewd at playing a multidimensional chess game meant to make sure the company does not fall behind again in AI. At the same time, the OpenAI drama continues: OpenAI is said to be planning the release of an AI-powered search product similar to Perplexity and competitive with Google. But just this morning, The Information reported that OpenAI may postpone an event where its leaders were expected to share updates and show product demonstrations—though it is unclear what the event was about.

So, are Microsoft and OpenAI full-on frenemies at this point? Or will the Nadella-Altman bromance continue? As recently as January, the two showed a united front in a discussion at Davos about their partnership. But either way, it looks like Microsoft isn’t taking any chances.

With that, here’s the AI news.

Sharon Goldman
sharon.goldman@fortune.com
@sharongoldman

This story was originally featured on Fortune.com