Growing Rift Between Microsoft and OpenAI: From AI Allies to Potential Rivals

There's a growing rift between Sam Altman and Satya Nadella - Microsoft could block OpenAI's for-profit restructuring

In brief: Is the perfect marriage of the intersection between AI and Big Tech heading for divorce? According to sources, OpenAI and Microsoft aren't as cozy as they once were, and the strain is beginning to show on their respective CEOs, Sam Altman and Satya Nadella. Microsoft helped push OpenAI to the top of the multi-billion-dollar AI industry by investing $13 billion into the firm since 2019. ChatGPT is closing in on one billion users, and OpenAI was recently valued at $300 billion. But the Wall Street Journal reports that a rift is growing between the companies' CEOs, Altman and Nadella. The publication writes that there has been tension over the computing power Microsoft provides OpenAI, the access the startup gives the Windows maker to its models, and whether OpenAI really will create artificial general intelligence (AGI) any time soon. Altman keeps stating that this is close to happening, but Nadella disagrees and doesn't appreciate his fellow CEO constantly claiming otherwise. There's also a conflict of interest with Copilot, Microsoft's own AI. Nadella wants to increase its sales and usage, and last year hired one of Altman's rivals, Google DeepMind co-founder Mustafa Suleyman, to build models that would lessen the company's reliance on OpenAI - though the difficulties of doing so meant Microsoft ended up relying on OpenAI even more than before. But potentially the biggest issue involves OpenAI's planned move to restructure into an independent for-profit company. Microsoft could effectively block the move, which could cost OpenAI tens of billions of dollars. OpenAI has its own form of attack. According to people familiar with the matter, the board can trigger a clause that would prevent Microsoft from accessing its most cutting-edge technology. It's claimed that officials have raised the possibility of doing so over the past year. Another sign of strain between the companies appeared during Google's antitrust trial. Nick Turley, head of product for ChatGPT at OpenAI, was one of the DOJ's witnesses. He testified that OpenAI had contacted Google last year about a partnership that would improve ChatGPT. The chatbot already uses Microsoft Bing's search data, but Turley mentioned there had been "significant quality issues" with a company referred to as "Provider No. 1," which was likely a reference to Bing. Nadella, you may remember, was the one who offered to hire Altman after he was briefly pushed out by the OpenAI board in 2023. The WSJ writes that at the closest point in their relationship, Nadella would text Altman five or six times a day and Altman would reply in kind. Now, they text less but do still speak on scheduled weekly calls.

Altman and Nadella are now fighting over AI

Sam Altman and Satya Nadella, once at the helm of a thriving partnership between OpenAI and Microsoft, are increasingly at odds over the terms of their collaboration, according to a recent article published by The Wall Street Journal. The CEOs have differing views on the computing power Microsoft provides to OpenAI, the access OpenAI gives Microsoft to its models, and whether OpenAI's AI systems will soon achieve humanlike intelligence. Their partnership, which began with a chance meeting in 2018, has been instrumental in driving the modern AI boom. Microsoft invested $1 billion in OpenAI in 2019, gaining exclusive access to its technology, while OpenAI built the groundbreaking ChatGPT, which accumulated over 500 million weekly users. Microsoft's investment helped transform it into a leader in the AI space, with its share price tripling. Tensions have risen as OpenAI seeks to restructure into an independent for-profit company, a move Microsoft could effectively block. If the conversion doesn't happen by the end of the year, OpenAI could lose tens of billions of dollars. Conversely, OpenAI's board can trigger a clause preventing Microsoft from accessing its most cutting-edge technology. Nadella has prioritized developing ChatGPT rival Copilot and hired Mustafa Suleyman, a former Google DeepMind co-founder, to build models that would reduce Microsoft's dependence on OpenAI. Suleyman's team began working on a large language model to rival OpenAI's GPT-4, but the project faced challenges, and Microsoft extended its reliance on OpenAI. A key area of contention is OpenAI's development of models with humanlike intelligence. The companies' agreement gives OpenAI's board the power to change its relationship with Microsoft once this milestone is achieved. Altman has expressed confidence in achieving this soon, while Nadella has dismissed the idea as "nonsensical benchmark hacking." OpenAI is seeking more computing power from Microsoft, including access to top-of-the-line chips. Microsoft has responded by loosening its exclusivity restrictions but maintains it is providing everything it can. The companies were in negotiations for a data-center project, but Microsoft put it on hold after Altman's brief ousting. In a recent development, Altman announced a potential $500 billion investment in Stargate, a project that closely resembles what he had hoped to accomplish with Nadella. The investment, anchored by SoftBank and Oracle, underscores the growing divergence between the two CEOs as they prepare their companies for independent futures.

Microsoft and OpenAI: From allies to rivals in the AI race

Once AI allies, now rivals in the making -- cracks are deepening between Microsoft and OpenAI as competition, control, and cost concerns reshape their high-stakes partnership. As Microsoft develops its own models and distances itself from OpenAI's tech, the future of their alliance hangs in the balance -- coexistence or an eventual split remains uncertain.The once-thriving partnership between Microsoft and OpenAI is showing signs of strain as both companies seek to gain more control over their shared AI future. What began as a close alliance in the AI age is now turning into a complex, high-stakes relationship as both companies pursue their own ambitions in the increasingly competitive arena. How it all started The partnership took root in 2018, after a chance meeting between Microsoft CEO Satya Nadella and OpenAI's Sam Altman, when OpenAI was still a non-profit organisation, according to The Wall Street Journal. Just a year later, Microsoft made its first major move -- investing $1 billion in the company. In exchange, Microsoft secured exclusive rights to OpenAI's technology and became its official cloud partner. This collaboration helped reposition Microsoft as a leader in AI. The relationship gained global attention in 2022 when OpenAI launched ChatGPT, the breakout product that became the face of the generative AI boom. In early 2023, Microsoft deepened its commitment with a $10 billion investment, giving OpenAI the resources to train its models on Microsoft-run data centres. Complications emerge Despite the initial synergy, cracks began to show in late 2023. Tensions escalated when Nadella was reportedly left out of the loop during OpenAI's boardroom upheaval, which saw Altman briefly ousted from his role last November. Although Nadella publicly supported Altman and even offered to hire him, the episode marked a turning point in their relationship. To ease the fallout, OpenAI granted Microsoft a non-voting observer seat on its board. However, that position was later relinquished by Microsoft to ease regulatory concerns. Growing competition Microsoft is no longer solely reliant on OpenAI's models. In recent months, the company has stepped up development of its own AI tools and models, seeking to integrate them across its products -- especially Microsoft 365 Copilot. Also Read: Microsoft 365 Copilot updates: From audio overviews to DIY AI agents, here's what Satya Nadella revealed ET had reported in March that Microsoft is also testing third-party models from companies such as Meta, DeepSeek, and Elon Musk's xAI. This move signals a clear intent to diversify from OpenAI's technology and reduce costs. Additionally, in its 2024 annual report, Microsoft even identified OpenAI as a competitor -- placing it alongside major tech companies such as Apple and Meta. Wielding power The contractual ties between the two companies give both sides leverage. According to WSJ, Microsoft, as a major investor and infrastructure provider, holds influence over OpenAI's ability to convert into a fully for-profit entity. If this transformation doesn't occur by the end of 2025, OpenAI could face massive financial setbacks. On the other hand, OpenAI's board can invoke a clause that would block Microsoft from using its most advanced AI systems. While no such action has been taken, the possibility has been raised internally over the past year, said the WSJ report, citing sources familiar with the matter. Signs of tension Further signs of a growing rift emerged when Microsoft was notably absent from OpenAI's high-profile Stargate announcement -- its ambitious next-generation AI project. This is being viewed by industry insiders as a sign of growing distance between the two. Adding to the unease, Nadella quietly recruited Mustafa Suleyman -- cofounder of Google's DeepMind and a known rival to Altman -- to lead Microsoft's consumer AI division. The recruitment was reportedly part of a covert initiative to reduce the company's dependence on OpenAI. It is interesting to note that Salesforce CEO Marc Benioff, in an interview with CNBC, predicted that Microsoft would eventually stop using OpenAI's technology across its platforms, including Copilot, due to its high cost and lack of speed. Whether the two giants will find a way to coexist -- or move toward a strategic split -- will define their next chapter.