OpenAI is one step closer to a radical transformation. This week, the company signed a “memorandum of understanding” with its biggest backer Microsoft, clearing a major hurdle in the AI lab’s plan to become a for-profit company.
After a summer of tense negotiations, the two giants agreed to extend their partnership, giving OpenAI the green light to move forward with its restructuring into a for-profit entity. The plan would shift OpenAI from its quirky nonprofit-controlled structure into a for-profit public benefit corporation (PBC), where the original nonprofit would retain control and hold an equity stake in the PBC worth over $100 billion.
The move is designed to unlock the trillions of dollars in capital OpenAI believes it needs to achieve its ultimate goal: artificial general intelligence (AGI). But the plan faces fierce pushback from regulators, critics, and deep-pocketed competitors like Elon Musk.
To understand this high-stakes evolution and what it means for the future of AI, I talked it through with SmarterX and Marketing AI Institute founder and CEO Paul Roetzer on Episode 167 of The Artificial Intelligence Show.
The memorandum of understanding that OpenAI announced is very short, saying in full the following:
“OpenAI and Microsoft have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership. We are actively working to finalize contractual terms in a definitive agreement. Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety.”
But, despite being only about 50 words long, the MOU is important. Because OpenAI needs to clarify its relationship with Microsoft if it wants to restructure, which it needs to do to go public. And it needs to go public if it wants to achieve its true ambitions.
“OpenAI needs to raise insane amounts of money, unparalleled-in-human-history amounts of money [to build AGI],” says Roetzer. “They think trillions of dollars. But the only way they’re going to do that is by going public.”
Under its current nonprofit structure, that’s virtually impossible. But moving to the PBC structure has been complicated by, among other factors, OpenAI’s relationship with Microsoft. Microsoft owns a sizable stake in the company. It also has usage rights to OpenAI’s technology under their current agreement. Sorting out how all of that is affected if OpenAI becomes a for-profit entity has been messy.
Signing the MOU is the first small, but important, step towards getting the Microsoft partnership sorted out, then moving forward with becoming a for-profit entity.
But as Roetzer notes, it’s not a done deal.
“Everyone assumes this'll just work out and all get solved,” says Roetzer. “It’s not a given though.”
OpenAI says outright in the MOU that it’s still working on a definitive agreement with Microsoft. And, beyond Microsoft, there’s plenty of fierce opposition to OpenAI’s plans to become a for-profit entity in the first place.
OpenAI’s push to convert into a full for-profit company is facing growing backlash in California and Delaware, where attorneys general in those states are investigating whether or not OpenAI’s restructuring plan violates nonprofit law.
(In fact, the scrutiny has become so intense that OpenAI execs at one point have floated the idea of the company leaving California entirely.)
As a result, OpenAI is launching a major public relations offensive. The company has announced a $50 million grant initiative called the "People-First AI Fund" to support nonprofits and community organizations.
The fund will focus on three areas:
Roetzer sees this as a highly strategic move to build goodwill as the company seeks regulatory approval.
“What they're basically doing here is they're racing to distribute money to show their positive impact on society and people,” he says. “There’s probably actual human good intended behind this, but this is all very intentionally being accelerated to show a positive impact on society.”
You can even see it in the name “People-First.” OpenAI is clearly trying to win hearts and minds as its plans face increased scrutiny.
This restructuring isn’t just about corporate governance, though that’s the central focus. It’s also a bit of a preview of how society may start to grapple with the immense power of AI and the effects the technology will have on the world at large.
Roetzer believes that as AI’s disruption becomes undeniable, the companies building it face a critical choice.
“You can either be the hero or the villain here,” he says. “This technology is going to disrupt society. That is inevitable. It will be viewed as a negative by large portions of society as they are impacted by it. You have to get out ahead of this.”
To avoid being cast as the villain, he believes AI companies will proactively lead with initiatives that demonstrate a commitment to human good, even as their technology disrupts jobs and industries. Lobbying efforts, massive philanthropic funds, and even explorations into universal basic income will likely become part of the playbook.
This story is intertwined with the future of government, labor, and society itself. As these AI labs grow more powerful, their relationship with the state becomes more intimate and complex.
“This is a very, very far-reaching topic,” says Roetzer. “If you understand what's going on with OpenAI, you will have a greater grasp of what's going to be happening in society for the next decade.”