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Microsoft invests billions more dollars in OpenAI, extends partnership

Microsoft today said that it's extending its partnership with OpenAI, the startup behind art- and text-generating AI systems like ChatGPT, DALL-E 2 and GPT-3, with a "multi-year, multi-billion-dollar" investment. OpenAI says that the infusion of new capital -- the exact amount of which wasn't disclosed -- will be used to continue its independent research and develop AI that's "safe, useful and powerful."

The optics aren't the best for Microsoft, which just last week announced plans to lay off 10,000 employees as a part of broader cost-cutting measures. But they'd been telegraphed by the company earlier this month -- in an interview with The Wall Street Journal, Microsoft CEO Satya Nadella said that Microsoft planned to make OpenAI's foundational systems available as commercials platforms so that any entity in any industry can build on them.

OpenAI will remain a capped-profit company as a part of the new investment deal with Microsoft. Under the model, backers’ returns are limited to 100 times their investment -- or possibly less in the future.

In a blog post, Microsoft said that it will increase its investments in the deployment of specialized supercomputing systems to accelerate OpenAI’s AI research and integrate OpenAI’s AI systems with its products while "introducing new categories of digital experiences." The tech giant's Azure cloud platform will continue to be OpenAI's exclusive cloud provider, powering the startup's workloads across research, products and API services.

Microsoft was previously rumored to be preparing a ChatGPT integration with Bing search results as well as bringing OpenAI's language AI technology into apps like Word, PowerPoint and Outlook. Several years ago, Microsoft-owned GitHub jointly developed and launched Copilot, a code-generating AI system. And Microsoft has incorporated OpenAI innovations including GPT-3 and DALL-E 2 into apps and services like Power Apps, Microsoft Edge and the forthcoming Designer.

The efforts build on Microsoft and OpenAI's years of close collaboration. In 2019, Microsoft announced that it would invest $1 billion in OpenAI (roughly half in the form of Azure credits) to jointly develop new technologies for the Azure platform and "further extend" OpenAI's large-scale AI capabilities. In exchange, OpenAI agreed to license some of its intellectual property to Microsoft, which the company would subsequently commercialize and sell to partners, and train and run AI models on Azure as OpenAI worked to develop next-gen computing hardware.

A year later, Microsoft revealed it'd built an Azure-hosted, OpenAI-co-designed supercomputer that at the time was among the most powerful machines in the world. Then in 2021, Microsoft launched the Azure OpenAI Service, an offering designed to give enterprises access to OpenAI’s AI systems including GPT-3 along with security, compliance, governance and other business-focused features.

The New York Times reports that Microsoft invested an additional $2 billion in OpenAI between 2019 and early 2023. The tech giant also became a key backer of OpenAI's Startup Fund, OpenAI's AI-focused venture and tech incubator program.

"We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform," Nadella said in a statement. "In this next phase of our partnership, developers and organizations across industries will have access to the best AI infrastructure, models and toolchain with Azure to build and run their applications."

"The past three years of our partnership have been great,"OpenAI CEO Sam Altman added in a press release. "Microsoft shares our values and we are excited to continue our independent research and work toward creating advanced AI that benefits everyone."

Sources previously reported that Microsoft was looking to net a 49% stake in OpenAI, valuing the company at around $29 billion. Under the terms of one proposal detailed by Semafor, Microsoft would receive three-quarters of OpenAI’s profits until it recovers an investment as high as $10 billion, with additional investors including Khosla Ventures taking 49% and OpenAI retaining the remaining 2% in equity.

OpenAI is under pressure to turn a profit on products like ChatGPT. The startup expects to make $200 million in 2023 from licensing and premium products like ChatGPT Professional, a pittance compared to the billions of dollars that have been invested in it so far.

To blame are the high costs of training, developing and running large AI systems. According to Altman, ChatGPT’s operating expenses alone are “eye-watering,” amounting to a few cents per chat in compute costs. (As of early December, ChatGPT had over a million users.) Meanwhile, GPT-3 is estimated to have cost millions of dollars to launch.

OpenAI -- and Microsoft, by extension -- face steep legal challenges that threaten to impede the growth of their AI explorations. The U.S. Patent and Trademark Office (USPTO) recently moved to revoke copyright protection for an AI-generated comic, saying copyrightable works require human authorship. And Microsoft, GitHub and OpenAI are currently being sued in a class action lawsuit that accuses them of violating copyright law by allowing Copilot, the aforementioned code-generating system, to regurgitate sections of licensed code without providing credit.

Some legal experts have argued that Copilot could put companies at risk if they were to unwittingly incorporate copyrighted suggestions from the tool into their production software. As Elaine Atwell notes in a piece on Kolide’s corporate blog, because Copilot strips code of its licenses, it’s difficult to tell which code is permissible to deploy and which might have incompatible terms of use.

The lawsuit also has implications for generative art AI like DALL-E 2, which similarly has been found to copy and paste from the datasets on which they were trained (i.e. images). Several OpenAI competitors were recently targeted in a legal case that alleges that they infringed the rights of "millions of artists" by training AI art-generating tools on billions of images scraped from the web "with­out the con­sent of the orig­i­nal artists."

Platforms like Getty Images have banned AI-generated content for fear of potential legal blowback.

Legal issues aside, OpenAI's text-generating tech has come under fire for its ability to sometimes give answers that sound convincing but aren’t factually true. Earlier this month, Q&A coding site Stack Overflow temporarily banned users from sharing content generated by ChatGPT, saying the AI made it too easy for users to generate responses and flood the site with dubious answers. ChatGPT has also been banned by several public school systems and at least one academic conference.

That's all to say that OpenAI and Microsoft have their work cut out for them.