is a senior editor and author of Notepad , who has been covering all things Microsoft, PC, and tech for over 20 years.
Beyond the selfies between Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman, and the friendly conversations between the pair on stage, all is not well with Microsoft’s $13 billion AI investment. Over the past year, multiple reports have painted a picture of a Microsoft and OpenAI relationship that is straining under pressure.
As OpenAI battles for access to more compute power and less reliance on Microsoft, tensions have been rising during negotiations over the future of OpenAI’s business and its Microsoft partnership. Microsoft backed down on being the exclusive cloud provider for OpenAI earlier this year, but OpenAI still needs Microsoft’s approval to convert part of its business to a for-profit company. That’s led to a potentially explosive outcome.
OpenAI executives have now reportedly considered accusing Microsoft of anticompetitive behavior, which could mean regulators look even more closely at the terms of Microsoft and OpenAI’s contract for potential violations of antitrust laws. The Wall Street Journal reports that OpenAI’s potential acquisition of AI coding tool Windsurf is at the heart of the latest standoff, as OpenAI wants Windsurf to be exempt from its existing contract with Microsoft.
If OpenAI does wage a public war against its biggest partner, Google will be grinning from ear to ear. The Federal Trade Commission (FTC) opened an investigation into Microsoft last year under the Biden administration, and the Trump administration is reportedly pushing ahead with the antitrust probe — including looking at Microsoft’s AI investments and deal with OpenAI. Google already reportedly urged the FTC to kill Microsoft’s exclusive deal with OpenAI, so regulators will be keen to hear directly from OpenAI. It’s more than ironic given that Microsoft’s initial OpenAI investment was triggered by Google fears.
Microsoft’s partnership with OpenAI is complicated, and the pair are intertwined both technologically and financially. While it’s been widely reported that OpenAI shares 20 percent of its revenues with Microsoft, there are additional revenue-sharing agreements in place, according to sources who are familiar with the arrangement.
Microsoft receives 20 percent of the revenue OpenAI earns for ChatGPT and the AI startup’s API platform, but Microsoft also invoices OpenAI for inferencing services. As Microsoft runs an Azure OpenAI service that offers OpenAI’s models directly to businesses, Microsoft also pays 20 percent of its revenue from this business directly to OpenAI.
Microsoft also has an unreported revenue share related to OpenAI’s impact on Bing and Microsoft Edge. If Microsoft’s search and news advertising revenue grows by 15 percent year-over-year, Microsoft then pays a 10 percent revenue share to OpenAI. This revenue sharing deal scales up to 20 percent, depending on year-on-year growth.
These complicated revenue-sharing agreements show how difficult it will be for OpenAI to break from this partnership. Microsoft’s multibillion-dollar investments also entitle it to up to 49 percent of the profit generated by OpenAI’s for-profit arm. Given OpenAI is far from profitability and Microsoft has a share of OpenAI’s losses, the software giant is still years away from seeing those profit returns.
But OpenAI is trying to convince Microsoft to give up its entitlement to future profits in return for a stake in the reshaped OpenAI business. The Information reports that this could give Microsoft an approximately 33 percent stake, if it’s willing to give up the capped share of profits. Microsoft’s OpenAI contract also includes a clause that means it will relinquish its rights to OpenAI revenue and its AI models when the startup achieves AGI. This is also reportedly linked to OpenAI’s profits.
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