Microsoft (MSFT, Financial) is reportedly contemplating ending its negotiations with OpenAI over a multi-billion-dollar partnership if key issues remain unresolved. Central to these discussions is the allocation of shares in OpenAI's future structure, with Microsoft's potential stake ranging from 20% to 49% in exchange for its $13 billion investment.
Current agreements grant Microsoft exclusive rights to sell OpenAI models and a 20% share of up to $92 billion in revenue. These terms are highly favorable for Microsoft, and the company is reluctant to make concessions on access to OpenAI technology or revenue sharing.
OpenAI is under pressure to finalize a deal with Microsoft by the end of the year to transition to a for-profit entity, crucial for retaining investor funding from entities like SoftBank. Failure to do so risks converting equity investments into debt, with SoftBank potentially reducing its $30 billion investment by $10 billion if the transition isn't completed.
Microsoft CEO Satya Nadella anticipates AI models becoming commoditized, leading the company to diversify its offerings. In May, Microsoft began providing its cloud customers with Elon Musk's xAI model, Grok, signaling OpenAI may no longer be the sole frontrunner.
