OpenAI and Microsoft's AI wishlists
Why it matters: The rising tensions are a reflection of how much the world has changed in the six years since the two companies placed their fate in each other's hands, sources tell Axios.
Despite recent efforts to diversify, each company still relies heavily on the other.
State of play: Microsoft and OpenAI are renegotiating partly because Microsoft must sign off on OpenAI's plan to revamp its business into a fully for-profit entity.
OpenAI has made restructuring a key priority, giving recent investors financial recourse if the conversion doesn't happen within months.
SoftBank, for example, could reduce the billions of dollars it has promised to invest if the restructuring isn't complete by year's end.
The plan would convert Microsoft's 49% stake in a capped-profit entity into a share of the company's overall business — a calculation that also dictates how much of the business will go to OpenAI's nonprofit arm, employees and other investors like SoftBank and Khosla Ventures.
The two sides also disagree over how to divide future revenue from their joint business over the coming years.
Yes, but: While ownership stakes and revenue shares are a driving factor in renegotiating the deal, both sides have other terms they would like to see changed.
Tensions are high, some of which came to the surface when OpenAI sought to acquire AI coding startup Windsurf, a deal that was eventually scuttled.
What Microsoft wants
Continued access to OpenAI's technology: Microsoft currently has rights to all of OpenAI's models and technology. But those rights get significantly curtailed once OpenAI has achieved so-called artificial general intelligence, a vague term that usually means AI that can outperform humans at a range of business tasks.
What OpenAI wants
Changes to the business structure: First and foremost, OpenAI needs to convert Microsoft's stake in the capped-profit business into a more typical ownership percentage in order to move forward with the restructuring.
Choice when it comes to cloud providers: OpenAI initially had to acquire all its computing horsepower to train and operate ChatGPT and OpenAI's other services from Microsoft. OpenAI has since brokered some flexibility, but its needs have grown enormously and the ChatGPT-maker is looking to build compute capacity at a scale that could dwarf Microsoft's other computing needs.
Also, under the current deal customers can only get OpenAI services through Microsoft or via OpenAI. OpenAI would also like to be able to deliver its services directly from other popular cloud providers, like Amazon Web Services.
Between the lines: Both companies are working to reduce their mutual dependence.
Microsoft has its own Phi family of small language models and its Azure AI Foundry hosts other models, including Meta's Llama and OpenAI's Grok, as well as the DeepSeek models developed in China.
OpenAI's Stargate data center projects involve SoftBank, Oracle and, in some cases, foreign governments and investors. The company has also made a deal to get some cloud computing capacity from Google.
The other side: While both companies are hedging their bets, their fortunes remain deeply intertwined.
Microsoft, for example, disclosed as part of Wednesday's earnings report that Azure is now a $75 billion per year business. OpenAI drives a significant chunk of that revenue and is key to Microsoft's ability to compete with Google, Anthropic and others.
What they're saying: Neither Microsoft nor OpenAI would talk on the record about the discussions. However, sources say reports of a frayed relationship are overblown.
"Our view is that the partnership has more legs to it than commonly believed," Goldman Sachs analyst Kash Rangan told Bloomberg TV on Tuesday. "Both parties have so much to gain from this."
While there are clearly tensions, one source said that the companies are largely acting in good faith to redefine what remains a key partnership for both Microsoft and OpenAI.
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