Speaker 1: A zone media greetums. I'm ed Zeitra and this is
Speaker 1: your weekly better offline monologue. Earlier this week, a story
Speaker 1: came out in The Wall Street Journal at tensions between
Speaker 1: open ai and Microsoft are and I quote, reaching a
Speaker 1: boiling point. Why well, let's give you some background. As
Speaker 1: open ai tries to convert part of itself into a
Speaker 1: for profit entity, all very annoying, but it would still
Speaker 1: be controlled by the nonprofit board. It faces one big
Speaker 1: obstacle it's deal with Microsoft. Back in twenty nineteen, Microsoft
Speaker 1: invested a billion dollars into open ai, and as part
Speaker 1: of that deal, OpenAI agreed to let Microsoft have full
Speaker 1: access to rights to its pre agi intellectual property, which
Speaker 1: means all of their intellectual property along with their research,
Speaker 1: and the exclusive right to sell open AI's models to
Speaker 1: their customers. Microsoft also, as a result of the deal,
Speaker 1: owns forty nine percent of the future profits of open
Speaker 1: ai and offers or offered It's unclear how these terms
Speaker 1: are these days discounted rates on Azure four open ai,
Speaker 1: Microsoft's cloud compute service, so open ai would pay less
Speaker 1: than other customers to host their services. I should also
Speaker 1: be clear that this deal means that Microsoft has almost
Speaker 1: complete control over open AI's future, and without their blessing,
Speaker 1: open ai cannot complete its conversion to a for profit entity.
Speaker 1: In the event that that conversion fails, soft Bank is
Speaker 1: able to pair the size of their investment in open
Speaker 1: ai down to a mere twenty billion dollars according to
Speaker 1: The Wall Street Journal, as opposed to the forty billion
Speaker 1: dollars that open ai well needs. In simpler terms, open
Speaker 1: ai has got ten billion dollars so far from SoftBank,
Speaker 1: and if they don't become a for profit entity by
Speaker 1: the end of twenty twenty five, they only get another
Speaker 1: ten billion dollars rather than the thirty billion dollars that
Speaker 1: they want, and will need to keep burning more money.
Speaker 1: All very silly and actually existentially bad. I'm surprised people
Speaker 1: aren't more freaked out about this. So open ai and
Speaker 1: Microsoft are currently locked in negotiations, which I mean open
Speaker 1: Ai is making arbitrary demands and Microsoft is saying no.
Speaker 1: So as part of the conversation, according to the information,
Speaker 1: open ai is asking for some very fucking stupid things
Speaker 1: I'll list them. They want Microsoft to only have thirty
Speaker 1: three percent of the new entity, as opposed to the
Speaker 1: forty nine percent of profits they have already. They want
Speaker 1: a lower Microsoft's revenue share, which is currently twenty percent
Speaker 1: of open AI's revenue, to ten percent. Just they want that,
Speaker 1: and they want to bar Microsoft from having access to
Speaker 1: open AI's future intellectual property, in part due to open
Speaker 1: AI's attempts to acquire coding startup Windsurf, which competes with
Speaker 1: Microsoft's git hub copylom. What's funny is part of the
Speaker 1: Information's story. They're like, yeah, Microsoft is said is part
Speaker 1: of the current deal. They're totally fine with the acquisition.
Speaker 1: What's really interesting as well is everyone reported the Windsurf deal,
Speaker 1: which is about three billion dollars, is a done deal.
Speaker 1: But at the time I was saying, hey, this hasn't
Speaker 1: happened yet. It's been two months since people talked about it.
Speaker 1: The Information says that Windsurfer said this deal was speculative.
Speaker 1: Kind of weird, right, be cool if we had like
Speaker 1: a kind of an analyst or a journalist who covered
Speaker 1: tech and thought about it. Yeah. Anyway, you may be
Speaker 1: wondering what it is that open ai is offering in
Speaker 1: return for these concessions, and the answer is nothing. Understandably,
Speaker 1: Microsoft is refusing to budge which has led to open
Speaker 1: Ai considering making an outlandish antitrust complaint against them. It's
Speaker 1: kind of like putting a gun to your own head
Speaker 1: and threatening to release the hostages if your demands aren't met,
Speaker 1: And if I'm honest, it's one of the most ridiculous
Speaker 1: things I've seen a company do in the Valley. Later
Speaker 1: in the week, the Information also report that open Ai
Speaker 1: has been undercutting Microsoft and selling chat GPT to enterprise customers,
Speaker 1: discounting chat GPT enterprise by ten to twenty percent for
Speaker 1: customers buying additional products from open Ai, and that directly competes,
Speaker 1: by the way, with Microsoft's Copylum. The Information also reports
Speaker 1: that Microsoft has been losing deals to open Ai because
Speaker 1: their finance side will only generally discount by five to
Speaker 1: ten percent. They also add that the same has been
Speaker 1: happening with enterprise deals over providing access to open AI's models,
Speaker 1: which Microsoft also sells. This whole relationship is so goddamn stupid.
Speaker 1: You've got two companies selling the same thing for some reason.
Speaker 1: I don't even know why you'd buy from Microsoft. Doesn't
Speaker 1: really make any sense to me other than and the
Speaker 1: Information even says that companies like Fidelity buy it because
Speaker 1: they're already buying crap from Microsoft. I just I think
Speaker 1: about this and it makes me slightly annoyed because it's like,
Speaker 1: this is not real business. Why would you have both
Speaker 1: companies selling the same thing. And it's just because everyone
Speaker 1: wants a monopoly these days. But it's all bad business.
Speaker 1: They all lose money. It's all very silly. But another
Speaker 1: tidbit from the information story is that and I quote
Speaker 1: open aiyes, pricing power may not be as strong with
Speaker 1: enterprises as it is with customers. This is a huge
Speaker 1: deal because it means that open AI's future is tied
Speaker 1: to the idea that they can sell and I shit
Speaker 1: you not. These are their alleged projections over one hundred
Speaker 1: billion dollars a year in subscription to consumers by twenty
Speaker 1: twenty nine. I want to give you some scale as
Speaker 1: to how fucking stupid this is. In twenty twenty four, Spotify,
Speaker 1: the most popular music streaming app, made just under sixteen
Speaker 1: billion dollars in revenue from subscriptions, and Netflix, the most
Speaker 1: popular streaming service, made around thirty nine billion dollars from
Speaker 1: the same Are you telling me that chat GPT is
Speaker 1: going to become more successful than two netflixes and two spotifies.
Speaker 1: Are you fucking insane? Anyway? This whole situation is completely ridiculous.
Speaker 1: Open Ai does not have any real leverage here, and
Speaker 1: the only possible way that they can lean on Microsoft
Speaker 1: is to try and make them look bad, which would
Speaker 1: require open Ai to piss off their number one infrastructure
Speaker 1: provider and their number one financial backer by arbitrarily threatening
Speaker 1: an antitrust case an obviously to the press. As a
Speaker 1: means of dragging down Microsoft. Open Ai is attempted to
Speaker 1: put pressure on a company that holds all the cards.
Speaker 1: You see, Sam Alman's real talent is that open ai
Speaker 1: has no not really had to commit anything to build
Speaker 1: their company. Microsoft provides them with the infrastructure. Microsoft funded
Speaker 1: them along with venture capitalists, private equity firms, and SoftBank.
Speaker 1: Oracle is covering all the costs of the GPUs going
Speaker 1: into the Stargate data center project in Abilene, which is
Speaker 1: funded by a private equity firm that pays Crusoe, an
Speaker 1: unproven data center builder, who has also taken out seven
Speaker 1: hundred and fifty million dollars in a line of credit
Speaker 1: to get the data center built. More egregiously, the Stargate
Speaker 1: entity which SoftBank will have full financial responsibility for has
Speaker 1: not even been formed, and from reports it doesn't even
Speaker 1: sound like open Ai has signed a contract to use it.
Speaker 1: It's so silly. The other side of this, though, is
Speaker 1: that having everybody else own all of the problems means
Speaker 1: that open ai doesn't really own anything, making them dependent
Speaker 1: on literally everybody. Any delays to stargate are out of
Speaker 1: open ais hands, as are any issues with their infrastructure,
Speaker 1: as are any issues with their funding, and when bartering
Speaker 1: with other companies, has little to offer other than discounts
Speaker 1: on the software that loses the money all the time.
Speaker 1: Sam Mormon's play here is that Microsoft is somehow dazzled
Speaker 1: by the glory that is open Ai and wouldn't want
Speaker 1: to take the reputational hit of scorning Silicon Valley's favorite
Speaker 1: company and their clammiest founder. Samy's only hope is that
Speaker 1: Satchynadella likes him enough to make major concessions for no
Speaker 1: apparent reason, something that seems increasingly unlikely as they send
Speaker 1: passive aggressive leaks to different media outlets. I should also
Speaker 1: add that Microsoft's legal team is two thousand people. Two thousand.
Speaker 1: I'm not kidding that is the team that if they
Speaker 1: did an anti trust complaint that would take years and
Speaker 1: years and years and years. Cannot be clear enough how
Speaker 1: long that would take. They would be going up against
Speaker 1: a company that has already won an anti trust case
Speaker 1: back in the nineties and the two thousands. I think
Speaker 1: open ais like fifty lawyers. Maybe they probably have an
Speaker 1: outside firm as well. How the fuck is that meant
Speaker 1: to work? I've had people suggest, oh, they could bribe Trump. No,
Speaker 1: they though they can't. And also to what end a bailout?
Speaker 1: How much money OpenAI constantly burns cash. It's more likely
Speaker 1: Microsoft absorbs them, and the outcome of this event will
Speaker 1: determine the entire future of the ai bubble. Though there
Speaker 1: is a decent chance that Microsoft degrees to some concessions
Speaker 1: and they work it out as a means of continuing
Speaker 1: their strangle hold on open Ai. There's also a chance
Speaker 1: that they just let open ai diet. After all, they
Speaker 1: own all the IP and the research, as well as
Speaker 1: housing all their infrastructure. They could just rip the open
Speaker 1: ai stick could put a Microsoft sticker on it. Open
Speaker 1: ai sends the Microsoft CHATGPT, dot Com goes to copilot.
Speaker 1: They probably do chat GPT, buy Copilot or buy Microsoft.
Speaker 1: Pretty easy, right. I understand why people don't think that
Speaker 1: can happen, just because it would be so big, but
Speaker 1: all the rails are there for it to occur. All
Speaker 1: very silly. I also think this pissy back and forth
Speaker 1: is a helpful distraction from open AI's core problem that
Speaker 1: they've yet to ship a meaningful new product in some time,
Speaker 1: and their entire future is based on consumer subscriptions, which
Speaker 1: will require them to create meaningful consumer products, a thing
Speaker 1: they've failed to do. I can't wait to see how
Speaker 1: this shakes out. I feel bad for Silicon Valley, but
Speaker 1: this is tremendous content