Microsoft and OpenAI have clarified the terms of their relationship, terms that contain both good and bad news for Microsoft.

Microsoft has been one of OpenAI’s biggest investors, pumping billions into the AI company and using its models as the basis for the company’s Copilot. As part of their agreement, Microsoft had an exclusive agreement for OpenAI to use Azure as its cloud service.

As part of the new agreement, Microsoft will no longer be OpenAI’s exclusive cloud provider, but will retain right of first refusal.

OpenAI recently made a new, large Azure commitment that will continue to support all OpenAI products as well as training. This new agreement also includes changes to the exclusivity on new capacity, moving to a model where Microsoft has a right of first refusal (ROFR). To further support OpenAI, Microsoft has approved OpenAI’s ability to build additional capacity, primarily for research and training of models.

While the loss of its exclusivity arrangement is an interesting turn of events, one that may be seen by some as a blow to Microsoft, there were other details that favor the Redmond giant.

• Microsoft has rights to OpenAI IP (inclusive of model and infrastructure) for use within our products like Copilot. This means our customers have access to the best model for their needs.
• The OpenAI API is exclusive to Azure, runs on Azure and is also available through the Azure OpenAI Service. This agreement means customers benefit from having access to leading models on Microsoft platforms and direct from OpenAI.
• Microsoft and OpenAI have revenue sharing agreements that flow both ways, ensuring that both companies benefit from increased use of new and existing models.
• Microsoft remains a major investor in OpenAI, providing funding and capacity to support their advancements and, in turn, benefiting from their growth in valuation.

OpenAI’s Intellectual Property

One of the biggest revelations of Microsoft and OpenAI’s changing relationship is the fact that Microsoft has rights to OpenAI’s IP, and can/will continue using it as the basis of Copilot.

Microsoft’s reliance on OpenAI has been a point of concern since the startup’s board ousted CEO Sam Altman. In the chaos that ensued, Microsoft was given a seat on the company’s board and emphasized the importance of greater oversight and responsibility within OpenAI.

The even bigger question was what would happen to Microsoft’s AI products if it lost access to OpenAI’s models. CEO Satya Nadella tried to assure investors that Microsoft has the ability to continue to develop AI regardless of OpenAI’s status.

In the months since OpenAI’s internal drama, Microsoft has taken steps to diversify its AI offerings, releasing several home-grown models of its own. There has even been reports of Microsoft exploring alternatives, with the company concerned “about the cost and speed for enterprise users.”

Microsoft emphasizing that it “has rights to OpenAI IP” is sure to reassure investors, customers, and partners.