WEBVTT - Monologue: OpenAI's Non-Profit Problem 0:00:02.160 --> 0:00:06.920 Zone Media. Hi, I'm Edzetron, and this is your weekly 0:00:06.960 --> 0:00:19.480 better offline monologue. Precarious. That's the nature of the GENERATIVAI industry, 0:00:19.560 --> 0:00:21.919 and especially open ai. A company that has never made 0:00:21.920 --> 0:00:25.000 a profit, has no pathway to profitability and is contingent 0:00:25.120 --> 0:00:27.720 upon other companies spending tens of billions of dollars on 0:00:27.760 --> 0:00:31.400 new infrastructure to power their models in the future. Throughout 0:00:31.440 --> 0:00:34.480 countless podcasts and newsletters, I've argued that all of these 0:00:34.520 --> 0:00:37.200 factors mean the open AI and by extension, the greater 0:00:37.280 --> 0:00:41.640 GENERATIVEAI industry, will eventually collapse. Open ai is just one 0:00:41.680 --> 0:00:43.520 of a long line of dominoes, and it really only 0:00:43.560 --> 0:00:47.120 takes one to four before the entire thing collapses. But 0:00:47.200 --> 0:00:49.640 by comparison, I haven't really paid nearly as much of 0:00:49.640 --> 0:00:51.919 the attention as I should have to the unusual structure 0:00:51.960 --> 0:00:54.480 of open ai, which I believe will also contribute to 0:00:54.520 --> 0:00:58.360 its downfall. Open ai was initially started as a nonprofit 0:00:58.400 --> 0:01:01.760 intended to further the safe development of artificial intelligence, if 0:01:01.760 --> 0:01:04.839 you believe them, Over time it morphed into an entirely 0:01:04.840 --> 0:01:07.759 different beast, becoming the most valuable startup in history, and 0:01:08.160 --> 0:01:10.440 the startup that has now raised the most capital in 0:01:10.520 --> 0:01:14.119 history sort of, but for legal reasons, it couldn't quite 0:01:14.120 --> 0:01:17.039 walk away from its nonprofit origins, and so we're now 0:01:17.120 --> 0:01:20.080 left with this strange hybrid that consists of a nonprofit 0:01:20.080 --> 0:01:23.320 that owns much of open AI's intellectual property and assets, 0:01:23.440 --> 0:01:25.840 and a for profit business sort of tacked on awkwardly 0:01:25.880 --> 0:01:29.440 at the side. In order to satiate its infinite thirst 0:01:29.480 --> 0:01:33.480 for capital, open Ai must radically restructure the entire organization, 0:01:33.840 --> 0:01:37.120 moving valuable assets and intellectual property from the nonprofit to 0:01:37.200 --> 0:01:40.040 the for profit entity. Their ability to raise money is 0:01:40.200 --> 0:01:43.640 entirely contingent upon this, as generally investors don't plow tens 0:01:43.680 --> 0:01:46.639 of billions of dollars into philanthropic ventures where they will 0:01:46.760 --> 0:01:50.160 never see a return. Indeed, many of open AI's previous 0:01:50.240 --> 0:01:52.840 funding rounds have had caveats that would radically alter the 0:01:52.960 --> 0:01:55.559 terms of their deal if open ai fails to convert 0:01:55.560 --> 0:01:58.960 into a for profit business. Last October, they raised six 0:01:59.000 --> 0:02:01.560 point six billion dollars from a bevy of investors, but 0:02:01.640 --> 0:02:05.280 the deal included a covenant of sorts that should they 0:02:05.760 --> 0:02:09.440 fail to convert into a full profit entity in two years. 0:02:09.480 --> 0:02:12.079 Of October twenty twenty six, the investment would convert into 0:02:12.120 --> 0:02:14.880 a loan. Open Ai would in effect have to return 0:02:14.960 --> 0:02:19.120 the capital to investors and potentially pay a punishing interest rate. Similarly, 0:02:19.320 --> 0:02:22.160 open AI's latest forty billion dollar with soft Bank is 0:02:22.200 --> 0:02:24.360 structured in a way where ten billion of the dollars 0:02:24.400 --> 0:02:27.600 are contingent on open ai becoming a for profit business. 0:02:27.880 --> 0:02:29.880 The point I'm trying to make is that for open Ai, 0:02:30.040 --> 0:02:33.919 this current structure represents an existential threat. In many ways. 0:02:33.919 --> 0:02:36.760 It is more dire than any shortage of compute capacity 0:02:37.160 --> 0:02:39.919 or the fact that they spend billions of dollars more 0:02:39.960 --> 0:02:43.480 than they'll ever make. So they just change structure, right, 0:02:43.520 --> 0:02:46.600 what's the big deal? Well, this is a complex and 0:02:47.040 --> 0:02:50.600 bureaucratic procedure that typically only happens in sectors like healthcare, 0:02:50.639 --> 0:02:53.520 where hospitals are bought out by larger for profit companies. 0:02:54.000 --> 0:02:56.440 I struggle to think of any similar examples in tech, 0:02:56.440 --> 0:02:59.480 and even if those examples exist, they don't involve entities 0:02:59.520 --> 0:03:01.639 of the size in value of open Ai or indeed, 0:03:01.639 --> 0:03:05.160 the prominence. The transformation isn't something that Sam Mortman can 0:03:05.200 --> 0:03:08.320 do unilaterally either. In essence, he needs that the consent 0:03:08.360 --> 0:03:11.560 of regulators and lawmakers in the State of California. We've 0:03:11.560 --> 0:03:13.920 already seen open aiy's moves be challenged but the likes 0:03:13.919 --> 0:03:16.679 of Elon Musk and Mark Zuckerberg, although these efforts did 0:03:16.720 --> 0:03:19.560 not or have yet to amount to much, though there 0:03:19.600 --> 0:03:23.200 is an upcoming trial with Elon mask over this. Part 0:03:23.200 --> 0:03:25.160 of the complexity comes from the very nature of what 0:03:25.200 --> 0:03:29.400 it means to be a nonprofit. Nonprofits enjoy certain tax benefits, 0:03:29.440 --> 0:03:32.240 both from their exemption from taxation to the benefits that 0:03:32.240 --> 0:03:34.320 come when a person makes a charitable donation to a 0:03:34.320 --> 0:03:37.200 non profit. If you give money to the Red Cross 0:03:37.280 --> 0:03:39.120 or a church or whatever, you can write that off 0:03:39.160 --> 0:03:42.600 against your taxes. As a result, open ai is constrained 0:03:42.600 --> 0:03:44.320 by what it can do with the assets that are 0:03:44.320 --> 0:03:47.240 held within the nonprofit. Those assets are supposed to be 0:03:47.320 --> 0:03:49.320 used for the benefit of society, it to serve some 0:03:49.400 --> 0:03:52.680 kind of charitable purpose. Open AI can't just transfer them 0:03:52.680 --> 0:03:55.320 to a for profit entity. Doesn't work like that, nor 0:03:55.320 --> 0:03:59.600 should it, even though they're very much trying to make it. 0:04:00.080 --> 0:04:01.840 Linked to this in the episode Notes, but a recent 0:04:01.880 --> 0:04:05.680 petition against open AI's restructuring alleges that open ai has 0:04:05.720 --> 0:04:09.440 already effectively broken the rules against how nonprofits should operate 0:04:09.600 --> 0:04:11.840 and manage their assets, but the first violation coming in 0:04:11.880 --> 0:04:14.880 twenty nineteen, right at the start of open AI's metamorphosis 0:04:14.920 --> 0:04:16.960 and around the time when it obtained its first billion 0:04:17.000 --> 0:04:20.320 dollars worth of investment from Microsoft. Addressed to the Attorney 0:04:20.400 --> 0:04:24.039 General of California and signed by innumerable figures in California 0:04:24.080 --> 0:04:27.880 and national philanthropy, it articulates a compelling case that open 0:04:27.920 --> 0:04:30.720 ai has already broken the law in several meaningful ways 0:04:30.839 --> 0:04:33.120 and urges the state to take action to prevent a 0:04:33.160 --> 0:04:36.839 further dilution of the open ai charitable mission. It describes 0:04:36.880 --> 0:04:40.880 these violations as and I quote, factually complex but legally simple. 0:04:41.360 --> 0:04:44.440 It claims that the twenty nineteen restructuring which created the 0:04:44.440 --> 0:04:47.760 for profit element involved the wrongful transfer of assets from 0:04:47.760 --> 0:04:50.640 the nonprofit. This is bad in and of itself, but 0:04:50.720 --> 0:04:52.919 as time dragged on the influence and relevance of the 0:04:52.920 --> 0:04:56.600 nonprofit wing over the for profit entity, the effectively ended. 0:04:57.400 --> 0:05:00.000 It gives the example of the November twenty twenty three coups, 0:05:00.000 --> 0:05:02.680 when Sam Altman was fired from the company over alleged 0:05:02.720 --> 0:05:06.000 dishonesty about the safety processes surrounding model development, and also 0:05:06.040 --> 0:05:08.120 a bunch of other stuff like not telling the board 0:05:08.120 --> 0:05:11.200 that chat GPT was coming out anyway. This firing, the 0:05:11.279 --> 0:05:13.799 letter states, came at the behest of the nonprofit directors. 0:05:14.240 --> 0:05:16.440 As we all know. It didn't take sam Altman long 0:05:16.520 --> 0:05:18.080 to return to the helm of open ai and the 0:05:18.120 --> 0:05:20.400 same role that he'd left. Many of the board members 0:05:20.400 --> 0:05:23.279 that had approved distermination left, and though they signed a letter, 0:05:23.320 --> 0:05:25.839 it was very much a they have me my family 0:05:25.920 --> 0:05:27.640 kind of thing, or I should say they have my 0:05:27.839 --> 0:05:30.480 stock units, and they were replaced by those who are 0:05:30.480 --> 0:05:32.760 more aligned for the for profit goals of open Ai. 0:05:33.480 --> 0:05:35.720 The petition also makes the case that open ai is 0:05:35.720 --> 0:05:38.440 renunciation of its commitment to open source research within its 0:05:38.560 --> 0:05:41.159 purpose clause, the thing that defines what a nonprofit is 0:05:41.279 --> 0:05:46.080 for also represented in illegal diversion of assets. Open source 0:05:46.120 --> 0:05:49.560 software benefits whoever uses it, whereas proprietary software, even if 0:05:49.600 --> 0:05:53.120 it's provided for free, there's comparatively fewer benefits to society. 0:05:53.600 --> 0:05:56.039 You can't change your modify or improve a program, and 0:05:56.080 --> 0:05:59.480 you're at the best. You're really at whatever the vendor 0:05:59.520 --> 0:06:01.599 wants to do as far as accessing or using the 0:06:02.040 --> 0:06:05.640 platform or program or whatever it might do. In practice, 0:06:05.680 --> 0:06:09.080 there's little open about open ai. They share little source 0:06:09.120 --> 0:06:11.760 code and don't even provide specifics about the training data 0:06:11.760 --> 0:06:14.880 they use. They're less concerned with public research and now 0:06:14.960 --> 0:06:17.600 shrouds their development in the same cloak of secrecy that 0:06:17.640 --> 0:06:20.520 you would expect from basically any other tech company. Now 0:06:20.560 --> 0:06:23.480 they're claiming they're going to release an open weighted model, 0:06:23.480 --> 0:06:26.760 but it's bullshit. I'm sorry, that's not enough. Now, the 0:06:26.839 --> 0:06:29.760 letter does make some specific demands. It wants the AG 0:06:30.000 --> 0:06:33.120 to investigate what assets were siphoned off from the nonprofit, 0:06:33.320 --> 0:06:36.600 block any conversion until the investigation is completed, and make 0:06:36.600 --> 0:06:39.400 sure that all charitable assets are returned to the nonprofit, 0:06:39.480 --> 0:06:42.760 and indeed to create a truly independent entity separate from 0:06:42.800 --> 0:06:45.159 Sam Morltman and the business interests of open ai, to 0:06:45.200 --> 0:06:48.679 act as a steward for these assets. If this petition 0:06:48.760 --> 0:06:52.400 succeeded in delaying the conversion, open AI's future becomes much 0:06:52.400 --> 0:06:55.840 more uncertain and perhaps may not even be possible. It'll 0:06:55.839 --> 0:06:57.880 make it harder to raise new funds that would only 0:06:57.920 --> 0:07:00.280 increase their cash burners. Open ai will now be to 0:07:00.320 --> 0:07:04.120 start making repayments and investments that were automatically converted into loans. 0:07:04.480 --> 0:07:08.680 Will it succeed, Maybe First, this petition doesn't come from 0:07:08.760 --> 0:07:11.480 arrival with an extra grind against Sam Altman. Like Elon Musk, 0:07:11.880 --> 0:07:14.280 the Black Freedom Fund, the Asian Law Caucus in the 0:07:14.320 --> 0:07:17.960 California Teamster's Public Affairs COUNTSL aren't exactly the natural adversaries 0:07:17.960 --> 0:07:20.920 of Vaultman, unless they, of course, secretly hate people who 0:07:20.920 --> 0:07:23.640 wear Patagolia vests, in which case I retract the entire 0:07:23.760 --> 0:07:26.520 art sentence and also add that I heartily congratulate them 0:07:26.520 --> 0:07:29.440 and agree with them. Moreover, this petition isn't framed about 0:07:29.480 --> 0:07:32.360 tech or AI or AI safety, but rather something far 0:07:32.440 --> 0:07:35.240 more simple. It's about what a nonprofit is and how 0:07:35.280 --> 0:07:38.679 it should be run. And if, as the letters authors argue, 0:07:38.680 --> 0:07:41.440 open AI should be allowed to restructure without being challenged 0:07:41.520 --> 0:07:44.320 or scrutinized, it will set a dangerous precedent that would 0:07:44.320 --> 0:07:46.880 make it harder to protect the charitable mission of nonprofits 0:07:47.040 --> 0:07:49.480 and make them easier for them to be plundered. Like 0:07:49.560 --> 0:07:52.840 I'd argue open AI has, it's a strong case. While 0:07:52.840 --> 0:07:54.560 it's hard to tell if the Attorney General will take 0:07:54.600 --> 0:07:57.280 it on, it could lay the groundwork for open AI's demise, 0:07:57.760 --> 0:08:00.320 and I'm sure some of you would love them well. No, 0:08:00.720 --> 0:08:01.320 I might too.