What can a $13 billion investment in OpenAI bring to Microsoft? There is a lot of potential, but there are also a lot of uncertainties.

When Microsoft invested $1 billion in OpenAI in 2019, the deal was no more eye-catching than the average corporate venture capital investment. The startup market was hot at the time, and artificial intelligence was just one of many areas attracting huge investments, including electric vehicles, advanced logistics, and aerospace.

Three years later, the entire market looks very different.

Microsoft's investment in OpenAI was not outstanding at the time, but now it has become a major topic among venture capital circles and investors. Many people are trying to figure out what this means for the value of their holdings. According to reports, Microsoft’s cumulative investment in OpenAI has risen to US$13 billion, and OpenAI’s valuation has reached approximately US$29 billion.

This is because Microsoft not only directly invests huge amounts of money in OpenAI, but also exclusively provides computing power for OpenAI’s product research and development and supports developer programming interfaces. At present, many startups and large companies are competing to integrate their products with OpenAI, which means that there are a large number of workloads running on Microsoft cloud servers.

Microsoft itself is integrating OpenAI’s generative artificial intelligence technology into its Bing search engine, marketing software, GitHub coding tools, Microsoft 365 productivity tool suite and Azure cloud services. In total, these will add more than $30 billion in new revenue to Microsoft annually, with about half coming from Azure, Wells Fargo analyst Michael Turrin said.

What does this mean for Microsoft’s investment and overall plans?

Bragging rights

OpenAI was founded in 2015 as a non-profit organization, but this kind of organization The architecture changed in 2019. At that time, two executives published a blog post announcing the establishment of a "profit cap" entity called OpenAI LP in the original organization, and set restrictions requiring the first batch of investors to not exceed 100 times the return on investment. Microsoft and others Investors later saw even lower returns.

An OpenAI spokesperson said that after the investment is recovered, Microsoft will receive a certain percentage of OpenAI LP’s profits, up to an agreed limit, and the remaining proceeds will flow to the non-profit organization to which OpenAI LP belongs. A Microsoft spokesman declined to comment.

Greg Brockman, co-founder of OpenAI and one of the authors of the blog post mentioned above, said in 2019 that for investors, the system “feels like they were investing in a company that was quite successful.” The returns that startups can get are comparable, but lower than what they could get from investing in the most successful startups of all time."

This model is rare in Silicon Valley, where venture capital is accustomed to maximizing investment returns. It also doesn't make much sense to Elon Musk, one of OpenAI's founders and early backers. This year, Musk has repeatedly expressed his concerns about OpenAI’s unconventional structure and its impact on the entire artificial intelligence industry on his personal social media Twitter.

“OpenAI was founded as a not-for-profit open source company (that’s why it was named ‘Open’ AI) to compete with Google, but now it has become A closed-source company effectively controlled by Microsoft and pursuing maximum profits." Musk tweeted in February this year, "This was not my intention at all."

Brockman said that if OpenAI Success will "create value orders of magnitude greater than any company to date." As a major investor in OpenAI, Microsoft is bound to benefit from this.

In addition to investment income, OpenAI may also help Microsoft significantly reverse its decline in the field of artificial intelligence. Previously, Microsoft had suffered repeated setbacks in the field of artificial intelligence, and the company had not built any outstanding business. After a lot of trouble, Microsoft removed the Clippy assistant from Word, removed Cortana from the Windows operating system taskbar, and the Tay chatbot launched on Twitter was also removed by Microsoft.

Unlike areas such as advertising or security, Microsoft has not disclosed the scale of its artificial intelligence business. The company's CEO, Satya Nadella, only said in October last year that Azure machine learning service revenue had doubled for four consecutive quarters.

The partnership with OpenAI at least gives Nadella bragging rights. At Microsoft's annual shareholder meeting one month after ChatGPT was launched, Nadella revealed that "ChatGPT, the most popular artificial intelligence application at the moment, was trained on Azure supercomputers."

In February this year, Microsoft A press conference was held at its headquarters in Redmond, Washington, to announce the integration of new artificial intelligence technology into the Bing search engine and Edge browser.

Although the Bing-integrated chatbot generated some incorrect answers when it was released, and subsequently encountered many problems in its interactions with users, for Microsoft, Google’s artificial intelligence chatbot Bard also encountered obstacles. , was not outstanding, leading Google employees themselves to describe the Bard project as too "rushed" and "messed up."

Despite some early problems, the entire technology industry is enthusiastic about this new technology based on large language models.

The core of the OpenAI chatbot is a large language model called GPT-4, which learns to automatically write fluent text after being trained on a large number of online information sources. An OpenAI spokesperson said that Microsoft has exclusive license to GPT-4 and all other OpenAI artificial intelligence models.

In addition to OpenAI’s large language model, there are many other similar products on the market.

Last month, Google said it had begun letting some developers trial a large language model called PaLM.

Startups AI21 Labs, Aleph Alpha and Coherence all have large language models, as does Google-backed Anthropic, which chooses Google as its "preferred" cloud provider. Like Altman and Musk, Anthropic co-founder Dario Amodei, who previously served as OpenAI's vice president of research, has expressed concerns about the limitless capabilities of artificial intelligence.

An Anthropic spokesperson said in an email, “We have been and are focused on developing innovative architectures to provide incentives for the safe development and deployment of artificial intelligence systems, and we will share information on this in the future. More information."

Looking at the entire artificial intelligence industry, one thing is clear: it is just getting started.

Quinn Slack, CEO of code search startup Sourcegraph, said that although OpenAI is the top provider of large-scale language models, he has not seen the cooperation with OpenAI bring to Microsoft. to significant advantages.

Slack said: "I don't think people should feel that Microsoft has completely locked OpenAI, or that OpenAI is doing what Microsoft wants." "I believe that OpenAI employees are motivated to develop amazing technology and Make it as popular as possible. They all think that Microsoft is a great customer, rather than wanting to control everything. This is good, and I hope it can continue."

There are also many people who are skeptical of OpenAI. At the end of last month, the non-profit organization Center for Artificial Intelligence and Digital Policy called on the U.S. Federal Trade Commission (FTC) to prevent OpenAI from releasing a new commercial version of GPT-4, calling this technology "biased and deceptive" sex, posing a threat to privacy and public safety."

When thinking about the future of OpenAI, Microsoft, which does not have a seat on the OpenAI board of directors, will naturally be thought of as an acquirer. But such deals are likely to draw scrutiny from regulators concerned not only about the growth of the artificial intelligence industry but also about Microsoft stifling competition. Remaining an investor without becoming an owner of OpenA would allow Microsoft to avoid antitrust scrutiny from U.S. competition regulators.

Scott Raney, managing director of Redpoint Ventures, said that based on OpenAI’s current valuation, an IPO is more likely.

According to PitchBook data, OpenAI’s revenue will reach $200 million this year, a 150% increase from 2022, and will reach $1 billion in 2024, which represents a 400% increase.

"When you raise money at a $30 billion valuation, there's no turning back," Raney said. "You say, 'Our plan is to be a big independent company.'"

An OpenAI spokesperson said that there are currently no plans to go public or be acquired. (Chenchen)

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