On Monday, Microsoft and OpenAI announced that they have renegotiated the agreement binding the two companies. Despite some opinions about X positioning it as a victory for the ChatGPT maker over the Windows giant, both sides are walking away victorious.
Most importantly, the new terms solve a problem that has been hanging over OpenAI’s head since it signed its up to $50 billion deal with Amazon.
With this new agreement, instead of Microsoft having exclusive access to all OpenAI products and IP until the magical day when OpenAI produces AGI, the partnership has a specific timeline. This contract gives Microsoft a non-exclusive license to OpenAI IP models and products until 2032.
The two companies still call Microsoft OpenAI’s “primary cloud partner,” meaning that the bulk of OpenAI’s cloud will likely be provided by Azure for the six years covering the contract, as OpenAI rushes to build out its data centers with other partners. In October, OpenAI agreed to buy another Microsoft cloud worth $250 billion. This line is a message to Microsoft shareholders that OpenAI will still be a major Azure customer.
OpenAI products will be shipped “first on Azure, unless Microsoft is unable and chooses not to support the required capabilities,” the companies said. But, critically, “OpenAI can now offer all of its products to customers on any cloud provider.”
Also, “first” is not clearly defined in this announcement, whether that means it’s exclusive to Azure only for a certain period of time or just that Microsoft will also be among the vendors carrying the latest OpenAI products.
But the most important part of this term: it resolves the possibility that Microsoft could sue OpenAI over the AI lab agreement with Amazon.
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To recap that breakdown: In February, OpenAI announced that Amazon is investing up to $50 billion in the model maker, including an initial investment of $15 billion and another $35 billion “in the coming months when certain conditions are met,” the companies said, without specifying what those conditions were.
In exchange, OpenAI agreed to integrate “runtime technology” into AWS Bedrock (an AWS service that offers various AI models and services). Formal runtime is the technology that supports AI agents, allowing them to remember tasks and situations for a long time.
OpenAI also promised that AWS will have exclusive rights to use OpenAI’s new agent creation tool Frontier. And there is the rub.
OpenAI’s original agreement with Microsoft prevented OpenAI from selling Frontier exclusively to AWS, and may have prevented AWS from selling it at all.
While Microsoft had previously agreed to allow OpenAI to use select products, such as Consumer ChatGPT, on other cloud providers, it retained exclusive rights to any OpenAI product accessed through an API, such as Frontier.
In fact, on the same day OpenAI announced its AWS deal, Microsoft publicly repudiated the AWS terms, writing (emphasis Microsoft):
“Microsoft retains its exclusive license and access to intellectual property for all OpenAI models and products. … Azure remains the exclusive cloud provider of stateless OpenAI APIs. … Any non-standard API calls to OpenAI models that are the result of collaboration between OpenAI and any third party – including Amazon – will be handled in Azure. … OpenAI’s first-party products, including Frontier, will continue to be hosted on Azure.“
Microsoft reiterated that its policies were in effect until OpenAI acquired AGI. The Financial Times reported that Microsoft is considering taking legal action if it has to enforce the terms of the contract.
Therefore, the new agreement removes Microsoft’s exclusive rights and solves AWS’s legal risk. In a post on X, Amazon CEO Andy Jassy celebrated the deal, adding that it means OpenAI models will be available to customers on AWS Bedrock.
While this deal is good for OpenAI, Microsoft walked away with some wins, too. The new agreement now allows Microsoft to stop paying a dividend to OpenAI, while OpenAI will continue to pay a dividend to Microsoft until 2030, although this is now subject to a cap.
How much money will flow to Microsoft is hard to say, but it could be in the billions. Last quarter, Microsoft reported that it made $7.5 billion in one quarter from its investment in OpenAI.
Ironically, Microsoft remains the largest shareholder in OpenAI, owning about 27 percent of the for-profit business, it said in October. It benefits financially from the growth of OpenAI, and even from the sales it makes on AWS.
The downside, of course, is that Microsoft loses any additional cloud services it can sell because of the exclusive deal with OpenAI.
That may not matter much. Just as OpenAI has been courting Microsoft’s biggest rivals, Microsoft has a new, cozy relationship with OpenAI rival Anthropic’s cloud giant to use its Claude AI to power agent products.
The biggest winners here are enterprises, who can choose their own models and clouds while the giants compete with each other to serve them.
Here’s a timeline of recent changes in Microsoft’s relationship with OpenAI.
In October, Microsoft and OpenAI announced a new agreement to help OpenAI avoid a lawsuit from Elon Musk over its business structure that gives OpenAI the ability to run products not accessible by API in other clouds.
In November, OpenAI and Amazon signed their first multi-year agreement, where OpenAI has an AWS contract worth $38 billion.
In February, Amazon announces investment of up to $50 billion in OpenAI, pending “certain conditions” including exclusive technology development and a Frontier and state-of-the-art hosting agreement. On the same day, Microsoft denies that AWS will only have that technology.
In Marchthe FT reports that Microsoft is considering legal action.
In April, OpenAI and Microsoft announced a new agreement, including a calendar end date for their exclusive partnership and allowing OpenAI to deploy all of its products in other clouds. Microsoft is no longer required to pay a share of OpenAI’s revenue. Microsoft remains the largest shareholder in OpenAI.
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