Nandini Roy Choudhury, writer
Brief news
- OpenAI plans to transition into a public benefit corporation by 2025 to enhance its commercial operations and attract significant investment, moving away from its current nonprofit structure.
- The company faces challenges, including a legal dispute with Elon Musk, who opposes the restructuring, and a loss of key talent due to concerns over prioritizing commercial success over safety.
- OpenAI’s recent funding rounds and high valuation highlight the competitive landscape in AI, as it aims to raise capital to compete with major players like Microsoft and Google in a rapidly growing market.
Detailed news
In a statement released on Friday, OpenAI said that the firm will establish a public benefit corporation to supervise commercial operations as part of its transition into a new for-profit structure in 2025. This will allow the company to behave more like a high-growth startup and remove some of the restrictions that it currently faces as a nonprofit organization.
The board of directors of OpenAI noted in the post that “the hundreds of billions of dollars that major companies are now investing into AI development show what it will really take for OpenAI to continue pursuing the mission.” It is necessary for us to raise a greater amount of funds than we had anticipated. We are interested in receiving financial backing from investors; but, at this level of capital, we require conventional equity and less structural bespokeness.
The pressure that is being put on OpenAI is connected to the fact that it has achieved a valuation of $157 billion in the two years that have passed since the company introduced its viral chatbot, ChatGPT, and so initiated the boom in generative artificial intelligence. In October, OpenAI successfully completed its most recent funding round, which was worth $6.6 billion. This move allows the company to better prepare itself to fight fiercely with Elon Musk’s xAI, as well as Microsoft, Google, Amazon, and Anthropic, in a market that is expected to surpass $1 trillion in revenue within the next ten years.
The development of the huge language models that are at the core of ChatGPT and other generative AI products requires a continual investment in high-powered processors, which are mostly provided by Nvidia, as well as cloud infrastructure, which is primarily provided by OpenAI’s main investor, Microsoft.
According to a confirmation made by CNBC in September, OpenAI anticipates a loss of almost $5 billion on revenue of $3.7 billion this year. The number of those individuals is rapidly growing.
OpenAI asserts that it will be able to pursue commercial operations if it successfully transforms into a Delaware public business corporation (PBC) “with ordinary shares of stock.” At the same time, it will be able to hire a staff for its nonprofit arm and enable that arm to engage in philanthropic activities in the fields of health care, education, and science.
As stated in the article published by OpenAI, the nonprofit organization will have a “significant interest” in the PBC “at a fair valuation determined by independent financial advisors.”
The convoluted structure that OpenAI has now is a direct outcome of the fact that it was established as a nonprofit organization in the year 2015. Initially, it was a research lab that concentrated on artificial general intelligence, also known as AGI, which was a notion that was considered to be completely futuristic at the time. It was formed by CEO Sam Altman, Musk, and other individuals.
OpenAI’s goal for 2019 was to transition away from its traditional role as a research lab and instead act more like a startup. To do this, the organization developed a model known as capped-profit, in which the nonprofit organization would continue to have control over the entire organization.
“Our current structure does not enable the nonprofit to easily do more than control the for-profit,” OpenAI wrote in a post that was published on Friday. “Our current structure does not allow the Board to directly consider the interests of those who would finance the mission.”
As a further benefit, OpenAI stated that the modification will “allow us to raise the necessary capital with conventional terms, just like our competitors.”
Musk’s objection OpenAI’s efforts to restructure are confronted with a number of significant obstacles. In particular, the most important factor is Musk, who is currently engaged in a fierce legal struggle with Altman, which has the potential to have a big influence on the future of the firm.
Over the past few months, Musk has filed a lawsuit against OpenAI and requested that the court prevent the business from transitioning from a nonprofit organization to a for-profit corporation. He referred to that endeavor as a “total scam” and asserted that “OpenAI is evil” in statements that he made on X. OpenAI stated earlier this month that Musk “not only wanted, but actually created, a for-profit” to serve as the company’s proposed new structure in 2017. This statement was made in response to the allegations made by Musk in 2017.
Not only has OpenAI been coping with its spat with Musk, but it has also been grappling with a loss of high-level talent. This is in part due to worries that the business has been concentrating on bringing commercial goods to market at the expense of safety.
The announcement that OpenAI Chief Technology Officer Mira Murati will be leaving the firm after six and a half years was made around the end of September. There was also an announcement made on the same day that research chief Bob McGrew and research vice president Barret Zoph would be quitting their positions. Co-founder John Schulman said one month earlier that he would be leaving the company to join the competing business Anthropic.
During an interview that took place in September during Italian Tech Week, Altman stated that the recent departures of executives were not connected to the possibility of the company shifting its organizational structure: “We have been thinking about that — our board has — for almost a year alone, as we think about what it takes to get to our next stage,” he added. “We have been thinking about it for independent reasons.”
To be sure, those were hardly the first major departures. In the month of May, Ilya Sutskever, the co-founder of OpenAI, and Jan Leike, a former safety leader, made the announcement that they were leaving their positions. Leike also joined Anthropic.
In a message that he made on social media at the time, Leike explained that his choice was motivated by disputes with the leadership on the priorities of the company.
According to what he wrote, “over the course of the past few years, safety culture and processes have taken a backseat to shiny products.”
It was written on X in September that “OpenAI was structured as a non-profit, but it acted like a for-profit.” This employee, who worked under Leike, left the company shortly after he left to pursue other opportunities. The worker continued by saying, “You should not believe OpenAI when it promises to do the right thing later.”
Source : CNBC news
