MarketWatch First Take

OpenAI seemed invincible a week ago. Now it’s extremely vulnerable.

A botched coup and a weekend of self-inflicted blows

Things went upside-down at OpenAI over the weekend, when it lost its chief executive, Sam Altman, and co-founder Greg Brockman to Microsoft.

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Just a week ago, OpenAI was poised to be the next Google or Facebook. Now, it’s drawing comparisons to Netscape Communications, Silicon Graphics and Sun Microsystems, once highflying companies relegated to the dustbin of Silicon Valley history.

Nearly a year after introducing ChatGPT to the world, helping establish it as an indisputably disruptive technology poised to sweep the economy — prompting an executive order from the Biden administration — OpenAI was seemingly aligned for a monster IPO and elevated status as the world’s AI leader, and a huge $86 billion valuation on paper to boot.

But that seems folly following a weekend of self-inflicted blows and Kabuki theater after a botched coup that has, arguably, led to a spectacular collapse at one of the Valley’s hottest companies in years. The behind-the-scenes moves stripped OpenAI of its veneer of invincibility and two of its biggest assets — its chief executive, Sam Altman, and Greg Brockman, co-founder and president — both of whom were quickly snatched up by the OpenAI’s biggest investor, Microsoft Corp. MSFT, +0.88%.

“Ultimately Microsoft has just acquired OpenAI for zero dollars and no regulatory requirements,” said David Borish, an AI strategist who consults with a wide range of companies. “If you look at what’s happened, that’s what it looks like.”

Borish noted that as part of Microsoft’s investment in OpenAI, the software giant received a perpetual license to OpenAI’s intellectual property, such as ChatGPT and other technologies. That license excludes artificial general intelligence, or AGI, should OpenAI’s technology to become as smart as a human or if the AI starts to take over.

“It signals a state of chaos,” Bhaskar Chakravorti, dean of global business at the Fletcher School at Tufts University, said in an email message. “The AI vanguard is now going to become even more fragmented and contentious; we are now in a new phase of ‘move fast and break things because if we don’t someone else will’ and we’ll all be paying the price for this down the road.”

A Microsoft representative did not immediately respond to emails seeking comment. In an interview with CNBC late Monday, Microsoft CEO Satya Nadella said he was “committed to OpenAI and Sam.”

“This weekend has been the craziest year in tech,” Box Inc. BOX, -0.91% CEO Aaron Levie tweeted Monday, neatly summarizing the whipsawing response to the melodrama.

To quickly recap, Altman and Brockman left OpenAI following a dramatic board meeting Friday, only to reconsider before ultimately decamping for Microsoft. Twitch co-founder?Emmett Shear?was named OpenAI’s interim CEO on Monday.

Deepening the blow, OpenAI’s staff are threatening to quit and join Altman and Brockman at Microsoft unless the board resigns, according to a letter, as reported seen by Reuters. Among those vowing to quit: Chief Technology Officer Mira Murati, who was temporarily interim CEO; Chief Data Scientist Ilya Sutskever; Chief Operating Officer Brad Lightcap; and about 500 members of OpenAI staff.

OpenAI employs about 700.

With so many OpenAI workers seemingly available, tech rivals such as Salesforce Inc. CRM, +0.79% wasted little time in attempting to poach them. “Salesforce and Slack and Tableau will ALL match any OpenAI researcher who has tendered their resignation full cash & equity OTE to immediately join our Salesforce Einstein Trusted AI research teams under Silvio Savarese,” Salesforce CEO Marc Benioff tweeted in part Monday.

OpenAI started out as a nonprofit that was focused on guardrails for artificial intelligence in 2015, under the aegis of Altman, Brockman, Tesla Inc. TSLA, +0.49% CEO Elon Musk, Canadian data scientist Sutskever and others. According to Fortune, Sutskever played a role in the ouster of Altman, and now deeply regrets the move. ?

“In a nutshell, the JV 4 Person Board at OpenAI was at the kids poker table and thought they won until [Microsoft CEO Satya] Nadella and Microsoft took this all over in a World Series of Poker move for the ages,” Wedbush Securities analyst Dan Ives said in a note Monday that reiterated an outperform rating on Microsoft shares with a $425 price target.

Now, the shift of AI power seems squarely in the hands of Microsoft, which in a previous life put an end to the Cinderella story of browser Netscape with Internet Explorer, contributing to a Justice Department antitrust investigation. The parallels have some industry wags openly concerned about Microsoft’s influence in the AI field.

“While the world is distracted by the unfolding theatrics at OpenAI, Microsoft is setting up the ultimate AI antitrust heist: a de facto acquisition of a company in which it previously had a minority stake,” says Steve Weber, an antitrust expert who is a professor at the University of California, Berkeley, School of Information.

“The walled garden that Microsoft is trying to build is the enemy both of AI innovation and AI safety — and regulators should be paying very close attention to the alarming competition policy implications of such a move,” Weber said.

“I don’t think any real talent is going to want to go to OpenAI at this point,” Borish said. “It’s gone, the energy is gone, there is a nucleus that holds these things together and that was definitely Sam.” [Harkening to another seismic event in Silicon Valley history, some have compared Altman’s ouster to that of Apple Inc. AAPL, +0.74% co-founder Steve Jobs in the 1980s: Both individuals were literally the faces of their fledgling companies.]

What becomes of OpenAI is anyone’s guess, but at least one venture capitalist sees some potential upside.

“In a sense we have a Mozilla,” said James Currier, a general partner at NFX, a venture capital firm that focuses on early stage investments. “Mozilla has been around for 20 years. It is a non-profit, mission-driven, do-good-for-the-world company,” referring to the free, open-source web browser developed by the Mozilla Foundation and its subsidiary, Mozilla Corp.

“OpenAI might continue as something that is more beneficial for the world, and Microsoft will be commercial,” Currier said.