How the OpenAI and Microsoft deal is coming undone

There is a kind of awkwardness in a relationship when both parties know something has changed, but neither wants to say it out loud. The partnership between Microsoft and OpenAI seems to have arrived at exactly that moment.

There is a kind of awkwardness in a relationship when both parties know something has changed, but neither wants to say it out loud. The partnership between Microsoft and OpenAI seems to have arrived at exactly that moment.

The duo that joined hands even before the ChatGPT-triggered AI boom took the tech world by storm.

Microsoft invested a billion dollars in OpenAI, back in June 2019, to “build beneficial AGI.” The move was aimed at extending Microsoft’s cloud capabilities in large-scale AI systems that were still not completely built. The logic was clean and mutually beneficial. OpenAI needed Microsoft’s money and cloud infrastructure to build large language models, and Satya Nadella needed Sam Altman researchers and cutting-edge technology. The partnership worked fine for both sides.

In late 2022, ChatGPT exploded into public consciousness, making Microsoft increase its funding in OpenAI with a $10 billion investment in January 2023 as the software maker rushed to integrate the technology into Bing — the company’s search engine — and its broader Office suite, which is now rebranded as Copilot.

At that point Mr. Nadella taunted Google’s Sundar Pichai, asking to show what his company could do with AI, making Mr. Pichai’s researchers double down on building Gemini. But the past few years have been quite dynamic and signs of strain in the partnership between the ChatGPT maker and the Windows maker were becoming visible.

The first real crack appeared when Microsoft was blindsided in November 2023 when OpenAI’s board abruptly fired Mr. Altman. Mr. Nadella quickly moved to bring Mr. Altman back. After Mr. Altman took back his position, dissolving most of the board, Microsoft obtained a non-voting observer seat — a concession that looked like influence but was, in practice, something far more modest.