Shulou(Shulou.com)11/24 Report--

On April 10, Microsoft has invested 13 billion dollars in OpenAI, an artificial intelligence start-up. These investments value OpenAI at nearly $30 billion, with great potential and a lot of uncertainty.

When Microsoft invested $1 billion in OpenAI in 2019, the deal was no better than the average corporate venture capital. At that time, the start-up market was hot, and artificial intelligence was only one of many areas attracting huge investment, such as electric vehicles, advanced logistics, aerospace and so on.

Three years later, the whole market looks very different.

Microsoft's investment in OpenAI was not outstanding at that time, but it has now become a major topic in the venture capital world and investors. Many people want to figure out what this means for the value of their holdings. According to reports, Microsoft's cumulative investment in OpenAI has risen to $13 billion, and OpenAI has been valued at about $29 billion.

This is because Microsoft is not only investing a lot of money directly into OpenAI, but also providing exclusive computing power for OpenAI's product development and supporting developer programming interfaces. At present, many startups and large companies are competing to integrate their products with OpenAI, which means that Microsoft cloud servers are running a lot of workloads.

Microsoft itself is integrating OpenAI's generative artificial intelligence technology into its Bing search engine, marketing software, GitHub coding tools, Microsoft 365Productivity tool Suite and Azure cloud services. In total, these will add more than $30 billion a year to Microsoft's revenue, about half of which comes from Azure, said Michael Turing, an analyst at Wells Fargo.

What does this mean for Microsoft's investment and overall planning?

The vaunted Capital OpenAI was founded in 2015 as a non-profit organization, but the organizational structure changed in 2019. At that time, two senior executives published a blog post announcing the establishment of a "profit cap" entity called OpenAI LP in the original organization and limiting the return of the first batch of investors to no more than 100 times, and even lower returns for later investors such as Microsoft.

A spokesman for OpenAI said that after recovering the investment, Microsoft will receive a certain percentage of the profits of OpenAI LP, up to a maximum of the agreed ceiling, and the rest of the proceeds will go to the non-profit organizations to which OpenAI LP belongs. A Microsoft spokesman declined to comment.

Greg Brockmann, co-founder of OpenAI and one of the authors of the blog post, said in 2019 that for investors, the system "feels comparable to the return they can get from investing in a fairly successful start-up, but lower than what they can get from investing in the most successful start-up of all time".

This model is rare in Silicon Valley, where venture capitalists are used to maximizing return on investment. Nor does it make much sense to Elon Musk, the founder and early supporter of OpenAI. Musk has repeatedly expressed his concerns about the unconventional structure of OpenAI and its impact on the artificial intelligence industry as a whole on personal social media Twitter this year.

"OpenAI was founded as a non-profit open source company (that's why it was named 'Open' AI) to compete with Google, but now it's a closed-source company effectively controlled by Microsoft to maximize profits." Musk tweeted in February. "that's not what I meant at all."

Mr Brockmann says that if OpenAI succeeds, it will "create orders of magnitude more value than any company so far". As a major investor in OpenAI, Microsoft is bound to benefit from it.

In addition to the return on investment, OpenAI has the potential to help Microsoft significantly reverse its decline in artificial intelligence. Microsoft has been frustrated in the field of artificial intelligence before, and the company has not built any business that it can handle. After a lot of trouble, Microsoft removed the Clippy assistant from Word, removed Cortana from the taskbar of the Windows operating system, and removed the Tay chat robot that was launched on Twitter.

Unlike areas such as advertising or security, Microsoft has not disclosed the size of its artificial intelligence business. Satya Nadella, the company's chief executive, said only in October that revenue from Azure's machine learning service had doubled for four consecutive quarters.

The partnership with OpenAI at least gives Nadella the capital he boasts. "the most popular artificial intelligence application, ChatGPT, is trained on the Azure supercomputer," Nadella revealed at Microsoft's annual shareholders' meeting a month after the launch of ChatGPT.

In February, Microsoft held a press conference at its headquarters in Redmond, Washington, announcing the integration of new artificial intelligence technology with Bing search engine and Edge browser.

Although Bing's integrated chat robot generated some wrong answers when it was released, and then there were a lot of problems in its interaction with users, Bard, an artificial intelligence chat robot launched by Google, was also stumbling and underperforming for Microsoft, leading Google employees themselves to describe the Bard project as "hasty" and "screwed up".

Despite some early problems, the entire technology industry is enthusiastic about this new technology based on large language models.

At the heart of the OpenAI chat robot is a large language model called GPT-4, which learns to write fluent text automatically after being trained by a large number of online information sources. A spokesman for OpenAI said Microsoft has exclusive licenses for GPT-4 and all other OpenAI artificial intelligence models.

In addition to OpenAI's large language model, there are many other similar products on the market.

Last month, Google said it had begun to let some developers try out a large language model called PaLM.

Startups AI21 Labs, Aleph Alpha and Coherence all have large language models, which are also available on Google-backed Anthropic, and Google is chosen as the "preferred" cloud provider. Like Altman and Musk, Anthropic co-founder Dario Amodai (Dario Amodei), a former vice president of research at OpenAI, also expressed concern about the unlimited power of artificial intelligence.

"We were and are focused on developing innovative architectures to provide incentives for the secure development and deployment of artificial intelligence systems, and we will share more information about this in the future," an Anthropic spokesman said in an email.

Throughout the artificial intelligence industry, one thing is clear: it is just beginning.

Quinn Slack, chief executive of Sourcegraph, a code search start-up, says that while OpenAI is a top-tier provider of large language models, he has not seen a significant advantage from the OpenAI partnership.

"I don't think people should think that Microsoft has completely locked in OpenAI, or that OpenAI is doing what Microsoft wants," says Mr Shrek. "I believe OpenAI employees are motivated to develop magical technology and spread it as much as possible. They all think Microsoft is a great customer, not want to control everywhere. That's good, and I hope to keep it going."

There are also many people who are skeptical about OpenAI. Late last month, the nonprofit Center for artificial Intelligence and Digital Policy (Center for Artificial Intelligence and Digital Policy) called on the Federal Trade Commission (FTC) to block OpenAI from releasing a new business version of GPT-4, calling the technology "biased, deceptive and a threat to privacy and public safety".

When thinking about the future of OpenAI, Microsoft, which does not have a seat on the OpenAI board, will naturally be thought of as the acquirer. But such deals are likely to attract scrutiny from regulators because they are worried not only about the development of the artificial intelligence industry, but also that Microsoft will stifle competition. Maintaining investor status rather than becoming the owner of OpenA allows Microsoft to avoid antitrust scrutiny by US competition regulators.

Scott Raney, managing director of Redpoint Ventures (Redpoint Ventures), said that based on OpenAI's current valuation, it is more likely to conduct an IPO.

According to PitchBook, OpenAI's revenue this year will reach $200m, an increase of 150 per cent over 2022 and $1 billion in 2024, which means an increase of 400 per cent.

"when you raise money at a valuation of $30 billion, there's no turning back," Mr. Laney said. "you say, 'our plan is to be a big independent company.'"

A spokesman for OpenAI said there were no plans to go public or be acquired.

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