Hello Friends,

Greetings from Portugal 🇵🇹 This week’s email will be a little bit different. I really want to cover the full insights into the Microsoft and Open AI multi-billion dollar alliance and how it really works. I found this super interesting and I hope you guys do as well.

🧵 In today's edition:

• 💲The Multi-Billion Dollar AI Alliance

• ❤️ My favourite AI tools this week

• 🌍 AI News Roundup

• 🐦 That’s a wrap

Read Time: 6 min 23 sec

💲 THE MULTI-BILLION DOLLAR ALLIANCE

How Microsoft’s multibillion-dollar alliance with OpenAI really works

ChatGPT maker quietly clarifies that tech giant has no equity despite $13 billion investment — but is in line to make big profits

Last week, UK officials said they were preparing to investigate Microsoft’s multibillion-dollar alliance with OpenAI and guess what happened after they announced this? OpenAI sneakily changed its website, downgrading Microsoft from a "minority owner" to a mere "minority economic interest."

Amidst the chaos OpenAI faced last month, CEO Sam Altman's initial firing by the board, and subsequent reinstatement under pressure from employees and investors, including Microsoft's Satya Nadella, marked a turbulent period. Despite rumours, Microsoft, alongside backers like Thrive Capital and Sequoia Capital, doesn't possess traditional equity in OpenAI. Instead, they're entitled to a share of profits from a specific OpenAI subsidiary, with a limit. Investors eyeing the ongoing $1 billion tender offer, valuing OpenAI at $86 billion, can expect a similar deal. Recently, OpenAI tweaked its website's ownership structure, changing Microsoft's role from a 'minority owner' to 'minority economic interest.' This shift highlights the collision of Silicon Valley's altruistic origins with the massive commercial potential of AI. Originally a non-profit founded in 2015, OpenAI now owns for-profit subsidiaries created in 2019 to accommodate Microsoft's investment. However, the intricate details of this structure were relatively obscure until recently.

Reports indicate that Microsoft has invested $13 billion in OpenAI, including a $10 billion expansion in January. Yet, details about the expected return for Microsoft's shareholders remained unclear until last week. The amended website graphic clarifies Microsoft's position without altering the underlying agreement, according to OpenAI.

“While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions,” Microsoft said on Friday last week.

As regulators scrutinize the alliance, Microsoft emphasizes that it doesn't own any part of OpenAI but is entitled to profit distributions. Contrary to earlier suggestions, Microsoft doesn't end up with a 49% stake. Instead, its billions, including investments as OpenAI's exclusive cloud provider, allow up to a 49% share of profits from a subsidiary, mostly owned by a holding company led by OpenAI's employees and investors. This holding company, in turn, is controlled by a charity overseen by OpenAI's board.

Rather than direct equity, Microsoft, employees, and investors own an economic interest in the for-profit, entitling them to a share of profits. This structure aligns with OpenAI's mission of developing safe artificial general intelligence (AGI) for the benefit of all humanity.

OpenAI investors face an upper limit on returns, and the timing of payouts remains unclear. The first investors had a cap of 100 times their investment, according to a 2019 blog post, with lower multiples for subsequent rounds. The company believes this structure makes sense due to the immense upside potential from AGI.

In addition to being the exclusive cloud provider, Microsoft secured an exclusive license to OpenAI's intellectual property. This excludes any AGI created in the future, with only OpenAI's board having the authority to declare an AGI breakthrough.

The duration of exclusivity agreements is unclear, and despite exemptions for non-profit organizations, the US Federal Trade Commission is investigating Microsoft's investment. The UK Competition and Markets Authority is expected to initiate a probe next year. The focus will likely be on whether Microsoft's influence over OpenAI has grown, given recent developments.

Since ChatGPT's launch in November last year, OpenAI has grappled internally over its commercial direction. Some executives felt pressured by Microsoft to expedite AI product deployment and profitability. In the recent leadership crisis, Microsoft, caught off guard, moved swiftly to restore stability. They agreed to a non-voting observer role on the reconfigured board, aiming for a positive impact on the start-up's governance. The goal is to ensure that OpenAI sticks to the rulebook.

Final Thoughts:

Man, this OpenAI-Microsoft saga is wild. The whole ownership shuffle, the behind-the-scenes money moves – it's like AI drama on steroids. But, you know, it makes me wonder: Are we guiding this AI ship in the right direction? The mess inside OpenAI, the probing by regulators, and Microsoft's behind-the-scenes nudges, it's like a messy show.

This investigation really gave me (and I hope you) a good understanding of how Microsofts alliance actually works; it was very unclear what was happening with this billion-dollar alliance until todays study where I decided that I would finally start to go down rabbit holes after rabbit holes until I got the full picture to share with you guys.

❤️ MY FAVOURITE TOOLS THIS WEEK

👕 Outfit Anyone - Try on clothes virtually with AI (link)

🌄 Pikzels AI - Create AI-generated thumbnails effortlessly (link)

🧠 Mental - A mental health app designed specifically for men (link)

💼 EarnBetter - Optimize your job hunt with a complimentary AI-powered assistant (link)

🎥 PixVerse - Turns your ideas into visuals with video creation software (link)

📊 Openlayer - Get real-time alerts when things go sideways with your AI model (link)

🌎 AI NEWS ROUNDUP

🦾 OpenAI explores ‘weak’ models controlling strong AI

OpenAI just released a new paper, introducing the concept of using small AI models to supervise more powerful ones — studying if they can generalize training despite limited capabilities. Aiming to tackle aligning superhuman AI, experiments show promising control of LLMs.

👀 Elon Musk Stole “Grok” as a name

Grimes voices "Grok" for Curio's new AI plush toys, distinct from Elon Musk's chatbot. Curio's Grok, trademarked first, encourages interactive, educational play as an alternative to screen time.

🎯 DeepMind AI cracks unsolved math problem

A new DeepMind paper just revealed that LLMs suggested code that solved the previously unachievable ‘cap set’ math problem. Though still messy, the technique shows that AI can surface groundbreaking NEW ideas versus just hallucinations.

😘 New "romantic" AI companion goes viral

A startup just unveiled Digi —a customizable virtual companion billed as "the future of AI romantic companionship." While AI avatars and companion bots are all the rage, many are slamming the viral launch — arguing this use case exploits loneliness over technological progress.

🐦 THATS A WRAP

I decided to change up this post from the normal ones today as I wanted to share an investigation that I had been delving into for the past few weeks. Microsofts Multi multi-billion dollar investment with OpenAI has been one of the biggest and most secretly kept AI investments to date. I really wanted to get the full picture of this to share with you guys which I hope I have delivered on today.

🎄 Merry Christmas to you all on Monday, wishing you all a blessed Christmas full of great times.

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And as always,

Keep Embracing the Future, One Byte at a Time! 🔄

See You Next Week