The Unraveling of OpenAI and Microsoft's Bromance

Summary

The Unraveling of OpenAI and Microsoft's Bromance

Episode Release Date: January 28, 2025
Host: Kate Linebaugh and Ryan Knutson, with Jessica Mendoza
Production: The Wall Street Journal & Gimlet, Spotify

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Introduction

In this illuminating episode of The Journal, Kate Linebaugh and Tom Doton delve deep into the intricate and evolving relationship between OpenAI and Microsoft. Titled "The Unraveling of OpenAI and Microsoft's Bromance," the episode explores the origins, growth, tensions, and potential future of this once-strong partnership that has significantly influenced the artificial intelligence (AI) landscape.

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The White House Announcement: A Grand Partnership

The episode opens with a significant event at the White House where Sam Altman, CEO of OpenAI, joined forces with President Donald Trump and leaders from Oracle and SoftBank to announce a monumental venture named Stargate.

Kate Linebaugh (00:05): "At the White House last week, OpenAI CEO Sam Altman was part of a big announcement."

Tom Doton (00:20): "Stargate will build data centers and help generate electricity to support AI, a $500 billion private venture to focus on AI."

This joint initiative aims to construct data centers and develop the necessary infrastructure to support the burgeoning demands of AI technologies.

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The Bromance Between OpenAI and Microsoft

The genesis of the OpenAI-Microsoft partnership dates back to 2018 when CEOs Sam Altman and Satya Nadella met at a business summit. Recognizing mutual benefits, Microsoft invested $1 billion in OpenAI in 2019, solidifying a multi-billion dollar relationship.

Kate Linebaugh (03:11): "The relationship between OpenAI and Microsoft started in 2018."

Tom Doton (04:24): "From the Microsoft side of things, they get exclusive early access to their software that gets built."

OpenAI benefited from Microsoft's extensive cloud computing resources, while Microsoft gained early access to OpenAI's cutting-edge AI developments, integrating them into products like ChatGPT.

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Strains and Tensions in the Partnership

Despite the strong foundation, the relationship began to show signs of strain as OpenAI's demands for increased computing power outpaced Microsoft's willingness to supply resources without breaching their exclusivity agreement.

Tom Doton (05:19): "OpenAI would say, you're not giving us enough resources. And frankly, like, we'd like to take our business elsewhere."

These negotiations created ongoing tensions, as OpenAI considered diversifying its partnerships to meet its expanding needs, while Microsoft aimed to protect its significant investment in the exclusivity agreement.

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The Stargate Project: A Turning Point

The announcement of Stargate marked a pivotal moment. Although initially perceived as a collaborative triumph, underlying tensions surfaced, especially with Microsoft CEO Satya Nadella absent from the press conference, signaling possible shifts in the partnership dynamics.

Kate Linebaugh (02:06): "Welcome to the Journal. Our show about money, business and power."

Tom Doton (02:35): [Advertisement segment skipped.]

The project, intended exclusively for OpenAI, showcased the deep financial and infrastructural commitments involved but hinted at cracks in the previously unshakeable bromance.

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Elon Musk's Involvement and Public Disputes

Elon Musk, an early investor and co-founder of OpenAI, became a vocal critic of Sam Altman's leadership. In a dramatic turn, Musk sued Altman, OpenAI, and Microsoft for alleged antitrust violations. Although the lawsuit was dismissed by OpenAI as baseless, it added public pressure and highlighted internal conflicts.

Kate Linebaugh (11:38): "I think his name is Elon Musk."

Tom Doton (11:50): "They don't actually have the money."

Altman responded by challenging Musk's claims, further straining public perceptions and internal relations.

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Microsoft's Position and Shifting Priorities

Amidst the turmoil, Microsoft signaled a shift in its commitment. In a blog post, the company announced a more flexible relationship, allowing OpenAI to seek resources elsewhere if Microsoft's contributions fell short.

Kate Linebaugh (14:25): "The agreement was that basically OpenAI will continue to come to Microsoft when they have requests for more data center capacity."

Tom Doton (14:47): "They are opening up their relationship."

Satya Nadella's public statements downplaying the Stargate investment raised questions about Microsoft's true commitment and financial backing.

Kate Linebaugh (13:27): "So he's like, throwing shade on how much of this money is real."

This move indicated a cooling relationship, with Microsoft focusing on its diverse AI projects and revenue-generating applications rather than the grandiose ambitions of building artificial general intelligence (AGI).

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Future Prospects: A Potential Split?

The episode explores the likelihood of a complete split between OpenAI and Microsoft. While tensions are evident, the deep-seated integration of OpenAI's technologies into Microsoft's products makes a total separation improbable in the near future.

Tom Doton (18:16): "Yeah, it's too soon to make that call."

Tom Doton (18:52): "There's too much history in that relationship."

However, the evolving priorities and resource allocations suggest that the nature of their collaboration may continue to transform, potentially leading to a more flexible and less exclusive partnership.

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Conclusion: The Evolving AI Landscape

"The Unraveling of OpenAI and Microsoft's Bromance" paints a comprehensive picture of a once-steadfast partnership facing the inevitable strains of rapid technological advancement and divergent corporate goals. As both companies navigate their paths, the AI industry watches closely, understanding that their dynamics will significantly influence the future of artificial intelligence development and deployment.

Kate Linebaugh (15:02): "Microsoft says it continues to be OpenAI's primary partner, and today Altman tweeted a picture of him and Nadella saying the next phase of their partnership is, quote, gonna be much better than anyone is ready for."

The episode underscores the complexities of high-stakes business relationships in the tech world, where collaboration and competition often intertwine.

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Additional Reporting: Deepa Sitharama

Get Show Merch: WSJ Shop

Transcript

[Kate Linebaugh]

At the White house last week, OpenAI CEO Sam Altman was part of a big announcement.

[Tom Doton]

His event at the White House was alongside the leaders of three leading artificial intelligence companies that are committing billions into.

[Kate Linebaugh]

A joint venture called Stargate.

[Tom Doton]

Stargate will build data centers and help generate electricity to support AI, a $500 billion private venture to focus on AI.

[Kate Linebaugh]

Alongside Altman, there was President Donald Trump and two other CEOs, one from the database software company Oracle and the other from tech investor SoftBank. What stood out to you about the presser?

[Tom Doton]

This was clearly a big deal for all the involved people. The image of all these guys in the White House talking about this and the enormous amounts of money that they were planning to raise and deploy in service of this project, I don't know. It was a whole to do.

[Kate Linebaugh]

That's our colleague Tom Doton. Tom said there was another thing that stood out. One major player who wasn't part of.

[Tom Doton]

The show, not pictured, not up there talking in front of the press, was Microsoft. And the CEO Satya Nadella was thousands of miles away in Davos for the World Economic Forum.

[Kate Linebaugh]

And why is that interesting that he wasn't there?

[Tom Doton]

Microsoft is the sugar daddy, so to speak, of OpenAI. They have poured more money by a huge margin than anyone else into this company. And Sam Altman appears at almost every Microsoft event. Anytime they're rolling out a giant new piece of software that involves OpenAI's products in there, or they just generally have a big event. Sam and Satya will usually be there on stage. To go from that to one of the biggest announcements in OpenAI's history. And Satya Nadella is not there is like pretty striking.

[Kate Linebaugh]

Welcome to the Journal. Our show about money, business and power. I'm Kate LINEBAUGH. It's Tuesday, January 28th. Coming up on the show is the biggest bromance in tech falling AP.

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[Kate Linebaugh]

The relationship between OpenAI and Microsoft started in 2018. Their meet cute was at a summit for business moguls where OpenAI CEO Sam Altman ran into Microsoft CEO Satya Nadella. At the time, OpenAI needed more computing power and was looking for funding.

[Tom Doton]

To this point, OpenAI had been actually using Google as its technology provider, and Microsoft kind of was interested in being their provider. And so the next year, in 2019, OpenAI gets a $1 billion investment from Microsoft. Hi, I'm here with Sam Altman, CEO of Open. Today we are very excited to announce a strategic partnership with OpenAI. So Sam, welcome. Thank you very much. And it kind of kicks off the beginning of this multi year and like multi billion dollar invested relationship between these companies.

[Kate Linebaugh]

Altman called OpenAI's relationship with Microsoft the best bromance in tech. The two companies had an exclusive partnership. OpenAI would get access to Microsoft's data centers and its cloud computing power.

[Tom Doton]

And then from the Microsoft side of things, they get exclusive early access to their software that gets built. So when something like ChatGPT gets built, Microsoft gets a relatively early look at it. Microsoft can tweak it and build it into their own products, and, you know, just generally get exclusive access to that company's intellectual property.

[Kate Linebaugh]

The relationship between OpenAI and Microsoft worked, and it became even more serious after the 2022 release of OpenAI's viral chatbot, ChatGPT.

[Tom Doton]

Maybe you've heard of it. If you haven't, then get ready because this promises to be the viral sensation that could completely reset how we do things.

[Kate Linebaugh]

As OpenAI kept scaling up its technology, the company needed more computing power. And that's where it started butting heads with Microsoft.

[Tom Doton]

And so OpenAI over the years would continually ask for more resources from Microsoft. And you know, Microsoft, they have their own projects too that they're building. They have software that needs cloud computing. And from the Microsoft point of view, they were giving them everything that they could. They were pulling chips from other projects and giving them to OpenAI so they could train all of their models. But from OpenAI's perspective, they just weren't getting enough.

[Kate Linebaugh]

So from the people you talked to, what did they tell you that OpenAI did?

[Tom Doton]

OpenAI would say, you're not giving us enough resources. And frankly, like, we'd like to take our business elsewhere, we'd like to use other cloud computing platforms that will give us enough resources. And Microsoft would come back to them and say, that's a violation of our exclusivity agreement. You guys can't bring your business elsewhere. And then OpenAI would respond and say, well, our agreement is that you guys give us enough resources to train our software. So you're the ones who are in violation of the agreement. And these negotiations would happen on and off over almost the entirety of their relationship.

[Kate Linebaugh]

Despite these tensions, the two sides remained committed to their partnership. That was visible in late 2023, when OpenAI's board of directors unexpectedly fired Altman as CEO over internal differences. But just days later, Altman was rehired.

[Tom Doton]

Sam Altman is back at OpenAI. That's after what can only be described as, frankly, a stunning reversal in a drama that has, of course, transfixed Silicon Valley and the global tech industry.

[Kate Linebaugh]

And a key player behind Altman's return was Satya Nadella.

[Tom Doton]

Satya plays a huge role in getting Sam reinstated. He really wanted him back in control at that company. And so that's an interesting moment because in a lot of ways that kind of cemented the strength of the relationship between those two personally.

[Kate Linebaugh]

But Altman was still jockeying for more and more computing power. Last year he went out to try to raise $7 trillion from partners other than Microsoft to, among other things, manufacture semiconductor chips. Microsoft, meanwhile, was building out its own AI business and focusing on a wide variety of clients. Last March, the company spent millions to hire most of the staff from an OpenAI competitor. The best bromance in tech was cooling. This all came to a head late last year when OpenAI and Microsoft took a closer look at their exclusivity agreement.

[Tom Doton]

So over the last couple of months of 2024, they were in talks to renegotiate their contract and OpenAI kind of it would reopen this perpetual can of worms of are they getting enough from Microsoft?

[Kate Linebaugh]

Earlier this month, Microsoft said it will invest $80 billion to build out AI related infrastructure this fiscal year. An investment that isn't just for OpenAI. And this fraying relationship was the backdrop to last week's White House announcement. That's next.

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[Kate Linebaugh]

Some very familiar faces on his first full day back in the White House. Last week, President Trump held that press conference with Sam Altman and the CEOs of Oracle and Softmake.

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Together, these world leading technology giants are announcing the formation of Stargate. So put that name down in your books because I think you're going to hear a lot about it in the future. A new American company that will invest $500 billion at least.

[Kate Linebaugh]

This Stargate project is to build data centers, period. That's its mandate.

[Tom Doton]

Yeah, yeah. Basically to build multiple data centers. And there's a lot of vagueness right now, but there's also the infrastructure around the data centers, like piping in the power that allow these things to work. I assume that's also going to be part of the cost. But it's all in service. Yes. Of these data centers.

[Kate Linebaugh]

And it will be used exclusively by OpenAI.

[Tom Doton]

Yep. Single customer.

[Kate Linebaugh]

Stargate backers say they have $100 billion already and that its first data center began construction last year in Texas. The companies didn't disclose how much each partner would contribute. Why was this private enterprise project announced at the White House?

[Tom Doton]

It was announced at the White House because they wanted to announce it as close as possible to the beginning of Trump's administration. And you saw Ellison, Masayoshi, Son, and Altman all individually and specifically giving Trump and the administration credit for this being able to happen. We wouldn't have been able to do it without you. Trump was kind of the theme of this whole thing. I think there's a lot of regulation that still needs to be ironed out when it comes to AI, and I think all these companies want to have a hand in writing that regulation. And the closer you can get to Trump and, you know, kind of butter him up is like a good move for them.

[Kate Linebaugh]

But in Trump's orbit, very close to Trump is a tech entrepreneur who's in an open war with Sam Altman.

[Tom Doton]

Yeah, I don't know who you're talking about there.

[Kate Linebaugh]

I think his name is Elon Musk.

[Tom Doton]

Oh, yeah, that guy.

[Kate Linebaugh]

Elon Musk was a co founder and early investor in OpenAI, but has been critical of how Altman's been running the company. Last year, Musk sued Altman, OpenAI and Microsoft for alleged antitrust violations. An OpenAI spokesperson has called the suit baseless and overreaching. Microsoft hasn't commented on the case. And in the hours after the Stargate announcement, Musk posted on X that, quote, they don't actually have the money. Altman replied that Musk's assertion was wrong. Then Altman took a swipe at Musk, saying, quote, I realize what is great for the country isn't always what's optimal for your companies. Where was Microsoft in all of this Stargate Twitter drama?

[Tom Doton]

It's so funny to me because sometimes as a reporter, you work really hard to find sources familiar with the matter who lets you know what these guys are really thinking. And sometimes they just tweet it out. And that's kind of what we're getting here. So a few hours after the Stargate announcement, Satya was asked about it on a TV interview. And his line was basically like, look, this hundred billion dollar thing, I don't really know about that. All I know is the $80 billion that we have pledged for our AI infrastructure. I'm good for my $80 billion. Look, all I know is I'm good for my 80 billion. I am going to spend $80 billion.

[Kate Linebaugh]

So he's like, throwing shade on how much of this money is real.

[Tom Doton]

I think it's a fair interpretation. And again, it gets even messier because Elon has been hate tweeting or hate posting about Stargate. And in one of them, Satya responds with, like, the crying, laughing emoji and basically says, like, we're not here just to hype up AI. We're here to build software and products that actually benefit people and make their lives better. And it's hard not to see that again as at least a little bit of a shot at Sam, who is kind of getting labeled as sort of a hype man when it comes to AI. And so, yeah, it seemed like in that particular exchange, both Elon and Satya were kind of on the same side and sort of clowning on Sam.

[Kate Linebaugh]

Here was OpenAI's sugar daddy turning on him publicly. And there was more. Around the same time Altman was at the White House, Microsoft was publishing a blog post that said the company's relationship with OpenAI had evolved.

[Tom Doton]

The agreement was that basically OpenAI will continue to come to Microsoft when they have requests for more data center capacity. The difference is that now, if Microsoft decides it doesn't want to build the new capacity that OpenAI is requesting, OpenAI is now allowed to take that request elsewhere.

[Kate Linebaugh]

They're opening up their relationship.

[Tom Doton]

Yes, it is an open relationship now, more so than it's really ever been.

[Kate Linebaugh]

Polyamory?

[Tom Doton]

Sure, if that's the direction you want to go with it, then, yeah, I think you could say these guys are in some sort of a poly situation.

[Kate Linebaugh]

Microsoft says it continues to be OpenAI's primary partner, and today Altman tweeted a picture of him and Nadella saying the next phase of their partnership is, quote, gonna be much better than anyone is ready for. How important is Stargate to OpenAI's future.

[Tom Doton]

I mean, I think really important. I think they weren't getting what they needed from Microsoft. Microsoft was not building data centers at the speed and rate that they wanted. And so they needed to take matters into their own hands. And if they kind of have way more control over the construction of these data centers, then yeah, I think it's like, I think it's essential to that vision.

[Kate Linebaugh]

OpenAI has said it needs bigger and bigger data centers to run its models. But this week that notion was challenged by a company in China called DeepSeek. DeepSeek said it had created an AI comparable to OpenAI's without using any of the incredibly expensive chips that OpenAI relies on. In a post yesterday, Altman called DeepSeek's model impressive and said it's, quote, invigorating to have a new competitor. So in thinking about the Stargate project, what does Microsoft's role, or lack thereof, say about the overall state of AI?

[Tom Doton]

Well, I guess things have grown a lot since Microsoft and OpenAI first began their relationship. And the level of resources that a company like OpenAI needs is kind of at an unprecedented level, or it's just a hard to predict level than it probably was in 2019. So I think as far as that goes, it's a recognition that we're in a totally different era when it comes to the amount of resources and money that it takes to build these sort of things. I think what's interesting that Satya brought up in a TV interview is that there's a bit of a divergence between these two companies in terms of their priorities and ambitions because OpenAI is out there trying to build what they call artificial general intelligence or an AI that has the same level of smarts and capabilities as a human. And that's not really Microsoft's goal at all. They want to build software and AI that can help people create Word documents faster and Excel spreadsheets and write marketing emails and make you a more efficient worker. And the more that OpenAI consumes these sort of resources and is trying to build models at this enormous scale, Microsoft is kind of diverging from that because they're out there to like get a return on their investment. Like they need to make real revenue from this.

[Kate Linebaugh]

Do you see these two partners splitting up in the future?

[Tom Doton]

Yeah, it's too soon to make that call. And I think it depends on what splitting up really means. I would find it hard to believe that there is a future where Microsoft and OpenAI are just like on non speaking terms, that they're just in completely different worlds. And there's so much about what Microsoft does right now in terms of the software they build that is reliant on OpenAI software. They're just too like, there's too much history in that relationship, you know.

[Kate Linebaugh]

News Corp, owner of the Wall Street Journal, has a content licensing partnership with OpenAI. That's all for today. Tuesday, January 28th. The Journal is a co production of Spotify in the Wall Street Journal. Additional reporting in this episode by Deepa Sitharama. Thanks for listening. See you tomorrow.