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OpenAI is transforming into a for-profit behemoth of the AI industry

13 Oct 2024

What is happening?

OpenAI, once a leader in non-profit AI research, is undergoing a seismic shift that could redefine the landscape of artificial intelligence development. The company has just completed the largest capital raise in private equity history—a staggering $6.6 billion (£5.4 billion) deal that has doubled its valuation to $157 billion (£128 billion) in just nine months. This financial milestone comes at a critical juncture for OpenAI, as it navigates the complex waters between its founding principles of safety and responsibility and the allure of commercialisation on an unprecedented scale.


The company's flagship product, ChatGPT, has become one of the fastest-growing applications in history, boasting over 200 million weekly active users. This rapid growth has translated into impressive financial projections, with OpenAI estimating annual sales of about $3.7 billion (£3 billion) this year and an ambitious forecast of $11.6 billion (£9.5 billion) for next year, according to documents reviewed by The New York Times.


Despite its current governance structure, built around an independent non-profit board, OpenAI has increasingly embraced a more commercialised approach to building and marketing its models. The company already operates a for-profit division, through which its largest investments, such as its partnership with Microsoft, are channelled. However, the current investment structure is complex, with investors holding "profit stakes" rather than traditional equity—a system that limits their share to hypothetical future profits.


The recent release of the new “o1” model, which employs step-by-step reasoning for prompts, was likely timed to coincide with the fundraising efforts. While this model may initially seem less sophisticated than GPT-4 for basic queries, it demonstrates advanced capabilities in complex mathematics and coding exercises, marking a shift in AI innovation towards more complex conceptions of “intelligence”.


The transition towards a more profit-oriented model has not been without its challenges. Since the dramatic, though short-lived, ouster of CEO Sam Altman by the non-profit board in November 2023, OpenAI has seen a significant turnover of founding staff and key personnel, signalling potential structural changes on the horizon. Notable departures include founders Ilya Sutskever and John Schulman, who have each left to join or found safety-focused AI competitors. More recently, Chief Research Officer Bob McGrew, VP for Research Barret Zoph, and most dramatically, Mira Murati, the influential Chief Technology Officer who oversaw the creation of OpenAI's blockbuster successes, ChatGPT, DALL-E, and Sora, have left. Murati had briefly served as interim CEO during Sam Altman's temporary ousting.


These departures, in addition to the dissolution of the company’s super alignment (safety) team, have raised concerns about OpenAI's commitment to its original mission of ensuring AI's safe and ethical development. Its dramatic push towards commercialisation might signal a potential shift in the company's priorities.


What is in it for you?

For readers concerned with AI safety and ethics, OpenAI's transition may be viewed with apprehension. The departure of key safety-focused personnel and the potential prioritisation of commercial interests over long-term safety considerations could alter the trajectory of AI development at large. However, it's worth noting that increased resources from commercial success could potentially be channelled into more robust safety research and implementation.


The company remains steadfast that these changes will not compromise its commitment to safety. OpenAI continues to espouse its "uncompromised principles of safety and broad benefit in its research and deployment efforts, unencumbered by profit incentives." In a recent blog post, OpenAI stated, "The new funding will allow us to double down on our leadership in frontier AI research, increase compute capacity, and continue building tools that help people solve hard problems."


The broader implications of this shift extend to the ongoing arms race in AI development. OpenAI's move towards a more commercial model could accelerate the rollout of new products and intensify competition with other developers to deliver cutting-edge, consumer-facing AI solutions. This acceleration may put pressure on regulatory bodies to keep pace with rapid technological advancements.


OpenAI's opposition to California's now-vetoed AI regulation bill is indicative of the growing tension between AI companies and regulators. As these companies become more commercially oriented, their influence on the regulatory process is likely to increase, potentially shaping the future landscape of AI governance.


What happens next?

The process of transitioning from a non-profit to a for-profit model is complex and fraught with legal and financial challenges. OpenAI's charity arm would essentially need to sell its own assets to its own for-profit entity at a fair market value to satisfy legal authorities, particularly California's Attorney General, who oversees charitable enterprises. This process may also result in a substantial tax bill for any newly formed for-profit entity in the state.


The potential long-term dissolution of the charity arm remains unclear, though it may continue to serve a purpose as a philanthropic entity with its own stake in the for-profit venture. This structure could allow OpenAI to maintain some of its original mission while pursuing more aggressive commercial goals.


As OpenAI navigates this complex transition, the AI industry and global tech community will be watching closely. The company's ability to balance its original mission with its new commercial ambitions will likely set the tone for other AI developers and shape the future of artificial intelligence development. Whether this shift will ultimately accelerate or hinder progress towards safe and beneficial AI remains to be seen, but it undoubtedly marks a pivotal moment in the structural evolution of the industry.


The Polis Team in Helsinki



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