Tom Warren, reporting for The Verge in his Notepad newsletter:

Beyond the selfies between Microsoft CEO Satya Nadella and OpenAI CEO Sam Altman, and the friendly conversations between the pair on stage, all is not well with Microsoft’s $13 billion AI investment. Over the past year, multiple reports have painted a picture of a Microsoft and OpenAI relationship that is straining under pressure…

OpenAI executives have now reportedly considered accusing Microsoft of anticompetitive behavior, which could mean regulators look even more closely at the terms of Microsoft and OpenAI’s contract for potential violations of antitrust laws. The Wall Street Journal reports that OpenAI’s potential acquisition of AI coding tool Windsurf is at the heart of the latest standoff, as OpenAI wants Windsurf to be exempt from its existing contract with Microsoft…

Microsoft’s partnership with OpenAI is complicated, and the pair are intertwined both technologically and financially. While it’s been widely reported that OpenAI shares 20 percent of its revenues with Microsoft, there are additional revenue-sharing agreements in place, according to sources who are familiar with the arrangement.

Microsoft receives 20 percent of the revenue OpenAI earns for ChatGPT and the AI startup’s API platform, but Microsoft also invoices OpenAI for inferencing services. As Microsoft runs an Azure OpenAI service that offers OpenAI’s models directly to businesses, Microsoft also pays 20 percent of its revenue from this business directly to OpenAI.

Before ChatGPT, OpenAI was effectively a useless company and Microsoft was its angel guardian. It made no revenue and had to bank on Microsoft Azure credits just to have enough compute resources to build a digital god or whatever the company’s mission is. Nowadays, OpenAI doesn’t need Microsoft’s bill credits — it just needs the infrastructure, and I’m sure Nadella will be happy to take OpenAI’s money anytime. OpenAI and Microsoft never really had a symbiotic relationship, and that gave Microsoft the leg up in negotiations. It got to dictate what companies OpenAI bought, how they marketed their products, and who they did business with.

This relationship began to crack after the launch of ChatGPT. Microsoft initially wanted in, upping its investment, but the optimism frayed after the leadership crisis the company suffered (caused?) in late 2023. To me, this was the impetus for the majority of the disagreements because it proved OpenAI wasn’t Microsoft’s semi-autonomous ligature anymore and that it could have its own problems with no say from Microsoft. Nadella, ultimately, wasn’t able to get Altman back in the chief executive’s chair — it was Altman’s negotiations that led him back to OpenAI’s offices. If anything, Microsoft only served as a bargaining chip when it briefly looked like Altman would work for Microsoft under Nadella.

Warren paints Microsoft and OpenAI’s relationship in terms of numbers, but it wasn’t like this until the Altman leadership scandal. Microsoft never really got anything out of OpenAI until ChatGPT — and the subsequent introduction of Bing Chat, which tried to marry Kevin Roose, a reporter for The New York Times — but once Altman’s company became a valuable asset, Microsoft lost what it was actually paying for: leverage. The Windsurf acquisition just made that even clearer for Redmond: It was a signal from OpenAI that Microsoft isn’t part of the team. Of course that’s going to cause conflict. It probably spells the end of any future investment from Microsoft, if such a deal ever seemed likely. Do I think the two companies will ever publicly break up? I’m not entirely sure, but I don’t think it’s safe to say OpenAI and Microsoft are “partners” anymore.

The thing that irks me is this whole “OpenAI wants to rat Microsoft out for breaking antitrust laws” bit. I don’t even think Microsoft broke any laws, and I can’t see how they would have. All of the OpenAI investments were made during the tenure of Lina Khan, the former chair of the Federal Trade Commission with a knack for operating a strict antitrust regime in Washington. Sure, the FTC launched an investigation into Microsoft under the Biden administration, but I believe she would’ve taken action early if she could. I’m inclined to believe The Wall Street Journal because its reporting on this beat has historically been excellent, but I don’t think a truly public breakup is in the books — certainly nothing like the feud between Altman and Elon Musk, an early investor in OpenAI. But on the off-chance they went ahead with it, the Trump administration, as Warren notes, is still actively investigating Microsoft.

Microsoft’s most important business these days is Azure, not Windows — which it abandoned years ago — or Microsoft 365, which basically runs in maintenance mode. (Seriously, when is the last time anyone has heard of a new, great feature for Microsoft Word? Not in a while.) Every company and its dog wants their hands on computing power, and Microsoft has plenty of it. It’s hosting models from OpenAI, xAI, and Claude, which makes it a more eloquent solution than anything Google has to offer. I’m no expert, but Microsoft and OpenAI’s businesses and needs are polar opposites: OpenAI is a consumer-first, developer-second company, while Microsoft has always been geared toward enterprise customers. Microsoft Copilot is free, but it’s hardly as good as any of ChatGPT’s apps. But nothing beats Microsoft’s cloud offerings. The business models just don’t align, and I’m interested to see how this plays out over the rest of the year.