# Why is Microsoft investing $1 billion in OpenAI, and what does each side get?

Date: 2019-07-23 · Author: Robert Scales · https://guidetoartificialintelligence.com/en/learn/why-microsoft-invested-1-billion-in-openai/

**Answer:** On 22 July 2019 Microsoft agreed to invest $1 billion in OpenAI, which in return will run its work on Microsoft's Azure cloud, build AI supercomputing technology with Microsoft, and make Microsoft its preferred partner for selling its future AI technologies. OpenAI gets the money and computing power it says it needs to pursue general-purpose AI; Microsoft gets a showcase for Azure and first access to OpenAI's commercial technology.

Yesterday, 22 July 2019, Microsoft and the San Francisco research lab OpenAI announced a partnership built around a $1 billion investment from Microsoft. The two companies will build new AI supercomputing technology together on Microsoft's Azure cloud, OpenAI will move its services there, and Microsoft will become the main channel for turning OpenAI's research into commercial products.

The deal comes four months after OpenAI reorganized so that it could accept this kind of money. It is the clearest sign yet of how expensive cutting-edge AI research has become.

## What was announced

There are two announcements, one from each side, and they describe the same deal with slightly different emphasis.

| Part of the deal | How OpenAI describes it | How Microsoft describes it |
|---|---|---|
| Money | Microsoft is investing $1 billion in OpenAI | A multiyear partnership with a $1 billion investment |
| Computing | Microsoft becomes OpenAI's exclusive cloud provider | OpenAI will move its services onto Azure |
| Technology | A hardware and software platform within Azure that will scale to AGI | Jointly built Azure AI supercomputing technologies of unprecedented scale |
| Commercial use | OpenAI will license some "pre-AGI" technologies, with Microsoft as its preferred partner | Microsoft becomes OpenAI's preferred partner for commercializing new AI |

**Azure** is Microsoft's cloud computing service: data centers that customers rent instead of buying their own machines. **AGI**, or artificial general intelligence, is OpenAI's term for a future system that could master a field of study at the level of a world expert, and master more fields than any single person. No such system exists today.

The press release is datelined San Francisco, where OpenAI is based, and Redmond, Washington, Microsoft's home. It quotes both chief executives. Sam Altman of OpenAI says building AGI could be the most consequential technology humans ever create. Satya Nadella of Microsoft says the goal is to democratize AI, meaning to make it widely available, while keeping safety "front and center."

## Why OpenAI wants it

OpenAI's post, by co-founder Greg Brockman, lays out the reasoning. It lists a major AI advance in every year since 2012: image recognition, simple video games, machine translation, board games, speech synthesis, image generation, robot control and, this year, writing text. All of them, OpenAI argues, come from the same recipe: deep neural networks plus ever more computing power.

More computing power costs money. The most obvious way to pay for it would be to build and sell a product, but OpenAI says that would pull it away from research. Instead, it plans to license some of the technology it develops along the way to Microsoft.

This builds on a change OpenAI made in March, when it created OpenAI LP, a "capped-profit" company under its original nonprofit. Investors in OpenAI LP can earn up to a fixed multiple of their investment, 100 times for the first round, with anything above that going to the nonprofit. At that time, chief scientist Ilya Sutskever wrote that staying at the cutting edge required massively increasing OpenAI's computing investment. Microsoft's money is exactly that kind of investment.

## Why Microsoft wants it

For Microsoft, the deal ties one of the best-known AI labs to Azure. Training very large AI models needs enormous computing clusters, and the companies say they will design new hardware and software together for that purpose. Microsoft says the improvements to Azure will also give ordinary developers better tools for building their own AI applications.

Microsoft also secures first position for any commercial products that come from OpenAI's work. OpenAI's latest high-profile project, the GPT-2 text generator announced in February, shows what kind of technology that could include.

A simple way to picture the arrangement is a research team that needs a giant telescope. A partner offers to fund it and build it with them, on the condition that the team uses the partner's observatory and lets it market the instruments that come out of the project.

> **Try it:** Read the two announcements side by side, OpenAI's blog post and Microsoft's press release. Highlight every promise in one color and every claim about the future in another. Then list what each company commits to concretely today, versus what it hopes will happen. It is a useful habit for reading any technology announcement.

## Open questions

Several details are not public. The announcements do not say how the $1 billion will be paid over time, or what share of OpenAI LP Microsoft receives. They also do not explain what the licensing terms will look like or which technologies count as "pre-AGI."

There is also the question of independence. OpenAI's structure says its nonprofit board, not investors, controls the company, and that its charter comes before investors' returns. The partnership gives both companies a shared interest in OpenAI's progress, and observers will be watching how that fits with OpenAI's stated mission of benefiting everyone, not one company.

## What could this partnership mean for developers and the public?

For developers, the most likely near-term effect is on Azure itself. If OpenAI's work leads to new large-scale AI tools, Microsoft is positioned to offer them first, likely through its cloud. Anyone building AI applications on Azure may see new tools and supercomputing options grow out of this work over the coming years.

For the public, the deal is a marker of a broader shift. The most advanced AI research now needs budgets that only large technology companies, or labs backed by them, can supply. OpenAI says it wants AGI to be deployed safely, society to be prepared, and the economic benefits to be widely shared. Microsoft says it shares those principles. Those statements are worth remembering as concrete products from this partnership begin to appear, because they give the public a yardstick for judging what the two companies do next.

## Sources

- Microsoft invests in and partners with OpenAI to support us building beneficial AGI: https://web.archive.org/web/20190723230205/https://openai.com/blog/microsoft/
- OpenAI forms exclusive computing partnership with Microsoft to build new Azure AI supercomputing technologies: https://news.microsoft.com/2019/07/22/openai-forms-exclusive-computing-partnership-with-microsoft-to-build-new-azure-ai-supercomputing-technologies/
- OpenAI shifts from nonprofit to 'capped-profit' to attract capital: https://techcrunch.com/2019/03/11/openai-shifts-from-nonprofit-to-capped-profit-to-attract-capital/