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Microsoft’s $1-Billion Deal With OpenAI: A Win-Win and Further Market Consolidation

Microsoft has invested $1 billion in OpenAI, which by the way is no longer “open.” Founded in 2015 by Elon Musk and Sam Altman, OpenAI recently restructured into a for-profit OpenAI LP so that it could commercialize its AI technologies and attract necessary funding. (Musk left the company a year prior.)

The new company’s structure is quite complex: the new OpenAI LP is a standalone investment fund that is governed by OpenAI (which is still nonprofit). Its primary objective is to raise capital, and it avows to adhere to OpenAI’s mission “to ensure that artificial general intelligence benefits all of humanity.”

Until the Microsoft deal, OpenAI used to rent computing power from Google, and given the scale required it’s not cheap. Now it has access to Azure.

What’s in it for Microsoft? Some of that $1 billion will flow back as payment for Azure cloud resources. And, of course, Microsoft also gets access to impressive technology and talent to compete with Alphabet, Facebook, and Amazon. And it gets great PR.

By the way, in AI, $1 billion is not that much money: Wired reports that in 2017 alone DeepMind, the AI subsidiary of Alphabet, burned through almost half a billion dollars.

Our Take

This is a race to world domination. With most organizations lacking resources to build and train machine learning models, the market is heating up for off-the-shelf AI (and cloud computing, of course, since some retraining is required after all). So, the best way to strengthen one’s market position? If you can’t buy them, make them your partner.