Is the honeymoon period over for Microsoft and OpenAI? Strained relations and deals with competitors spell trouble for the partnership that transformed the AI industry

Microsoft and OpenAI have signed an agreement to shake up the duo’s long-running partnership at the latter looks to restructure into a for-profit company.

The move marks the latest development in a changing relationship dynamic for the two firms, with both forging ties with other industry stakeholders and respective competitors.

“Microsoft and OpenAI have signed a nonbinding memorandum of understanding (MOU) for the next phase of our partnership,” a joint statement reads. “We are actively working to finalize contractual terms in a definitive agreement.”

OpenAI's push to becoming a for-profit entity requires approval from Microsoft, as per the terms of their partnership. While the exact terms of the revised agreement are yet to be revealed, at this stage it appears to come with a notable caveat.

OpenAI revealed the nonprofit parent will still retain oversight of the company, taking an equity stake of around $100 billion.

In a follow-up statement, chairman Bret Taylor noted this makes it “one of the most well-resourced philanthropic organizations in the world”.

Microsoft and OpenAI were destined to clash

The proposed changes come as Microsoft and OpenAI continue to drift apart in key areas. It’s a talking point that’s become a recurring theme over the last year, with both companies now essentially competing for customers.

In January, Microsoft told ITPro OpenAI “continues to be our partner on frontier models” following reports it was exploring the prospect of integrating third-party alternatives to power its Microsoft 365 Copilot service.

On 9 September, reports from The Information revealed Microsoft will now pay Anthropic to use its AI in Office 365 applications alongside OpenAI options. This will see Anthropic AI models used to power a host of key applications, including Word, Excel, Outlook, and PowerPoint.

OpenAI has also made moves to distance itself from Microsoft, largely on the issue of compute power. The company is a key figure in the $500 billion Stargate Project alongside Oracle and SoftBank, for example, which aims to build out AI infrastructure across the United States.

In January, OpenAI also moved away from using Microsoft Azure as its sole cloud provider, and has been forging closer ties with Oracle. A June 2024 agreement saw Oracle, Microsoft, and OpenAI partner to "provide additional capacity” for the latter.

This included using the Azure AI platform on Oracle Cloud Infrastructure (OCI) for “inference and other needs”, the company said at the time.

This partnership fueled speculation about an emerging rift with Microsoft, prompting OpenAI to issue a statement claiming its “strategic cloud relationship with Microsoft is unchanged”.

OpenAI’s for-profit conundrum

OpenAI has faced significant pushback in its shift to become a for-profit entity.

In December 2024, the company proposed establishing itself as a Public Benefit Corporation (PBC). This would mean the nonprofit will hold shares in the company but have little influence.

A second push to split commercial operations and become a for-profit company was scrapped in May following pressure from industry stakeholders, regulators, and former employees such as Elon Musk.

The Tesla and SpaceX chief executive filed a legal challenge to block the move, claiming it disregarded and ran counter to the company’s founding principles.

In a blog post at the time, OpenAI confirmed the nonprofit would “stay in control after hearing from civic leaders and having discussions with the offices of the Attorneys General of California and Delaware”.

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