OpenAI – Hot Mess

Looks to have been a fight over profit

• The absurd goings-on at OpenAI this weekend look to me to have come down to disagreements about money, but the implosion of the company may have just allowed it to fulfil its original mission.
• Sam Altman, the CEO and co-founder of OpenAI was suddenly fired by the board of OpenAI on Friday, November 17^th which was met with such a furore that attempts were made to reinstate him.
• However, recent events suggest that negotiations to reinstate Mr. Altman have broken down completely and that he and a significant contingent of the company will now leave and start a new company.
• Needless to say, the press and social media have been rife with speculation as the only reason given for Mr Altman’s sudden removal was a failure to communicate clearly with the board.
• The principle of Occam’s Razor states that the simplest explanation is usually the correct one which in this case is money.
• OpenAI was set up as a non-profit to develop artificial general intelligence (AGI) which is the point at which machines become as intelligent as humans or more so.
• As a non-profit, OpenAI would ensure that this critical technology would not be monopolised by a single company but would instead benefit all of humanity.
• While the company was a bunch of scientists tinkering with a problem that has eluded humanity for years and making little progress, this was not a problem.
• However, along the way on this journey, the company created something that does not solve the AGI problem, but did cost a fortune to create and which has very great commercial potential.
• The seed of this implosion was sewn when OpenAI took $1bn from Microsoft in 2020 (see here) which it needed to pay for the immense amount of compute that was required to develop its large language models (LLM).
• This was compounded in 2023 when it took another $10bn leaving Microsoft with just under 50% of the company and I think, effective control (see here).
• However, Microsoft is a commercial enterprise and does not invest $11bn with no hope of earning a return as it has a fiduciary duty to its shareholders to make them money.
• Sam Altman increasingly understood this but his board being more distant from the daily realities was focused on the original mission upon which the company was founded.
• This weekend was simply the detonation of a bomb that has been waiting to go off since 2020.
• Mr Altman is not returning to OpenAI but importantly, Mira Murati (chief scientist) is also no longer interim CEO meaning that she, too may also leave with Mr. Altman.
• This is relevant because RFM research has concluded that Ms. Murati is the real brains behind the operation and that she will be needed to give Mr Altman’s new venture its best chance of success.
• This leaves Microsoft in a real bind as it seems that all of the brains are walking out of the door leaving Microsoft with a bunch of algorithms that will age quite quickly with no one to update them and a pile of potentially worthless paper.
• This is precisely the risk that I believed would force Microsoft to acquire OpenAI, but it has happened so quickly that there is no way that Microsoft will have had time to mitigate it.
• Microsoft will not have lost very much money in real terms as almost all of the money that it gave to OpenAI came straight back in terms of Azure revenues although it has had to spend more on Nvidia chips than it would have liked.
• The real winners here are OpenAI’s rivals who now have a golden opportunity to capitalise on one of the messiest, least professional implosions of a company that I have ever seen.
• This mess will take months to recover from and every AI engineer at OpenAI will now be rethinking their options making them much easier pickings.
• Furthermore, it will greatly slow the development of AI at OpenAI giving everyone else a chance to catch up and even surpass OpenAI in terms of AI excellence.
• One way out of this debacle is for Microsoft to acquire OpenAI which I think has long been on the cards (see here), and for Mr Altman and his co-founders to start something new.
• The net result is that in just a few days, the most important and influential company in the AI industry has been reduced to almost nothing and the void will be rapidly filled with all of its rivals.
• Hence, I don’t think that this affects the development of AI very much, but it will make a more level playing field in terms of competition as everyone else moves in at the same time.
• It is ironic that through its own implosion, OpenAI may have just fulfilled its mission.