In OpenAI Fiasco, Microsoft’s Satya Nadella Outsmarted Them All

  • Satya Nadella was instrumental in the failed talks to bring Sam Altman back to OpenAI.
  • Of all the parties on the losing end of this fiasco, Microsoft was potentially the biggest.
  • But Nadella made a move for the history books by hiring Altman and his loyalists to work directly for Microsoft.

By Monday morning, it was official: Sam Altman couldn’t be convinced to return to OpenAI. But, in a brilliant strategic move, CEO Satya Nadella instantly found a way out of what would have been a catastrophe for his company, Microsoft.

Nadella hired Altman, and the other prominent people who left OpenAI, to work directly for Microsoft “to lead a new advanced AI research team,” Nadella wrote on Monday in a post on X.

As soon as Altman’s ouster from the company he co-founded shocked the tech industry on Friday, VCs were, no doubt, formulating plans to write checks for his next venture, as the memes on X joked.

Prominent VC Vinod Khosla said as much on X. “To be clear, Khosla Ventures wants @sama back at @OpenAI but will back him in whatever he does next,” he posted.

If that next venture was a generative AI startup that competed with OpenAI and had no qualms about pursuing commercial success (a likely choice!), Altman would also have no trouble poaching the brightest minds from OpenAI. His cofounder, Greg Brockman, immediately quit in protest of Altman’s removal, as did three senior researchers.

More staffers were threatening to resign if Altman wasn’t reinstated, the Verge reported. And, on Monday nearly 500 of them are still threatening to quit unless the board resigns and Altman comes back.

Over the weekend, as this was unfolding, staffers were sending mysterious heart emoji X posts to Altman, who replied to them with a post on X of his appreciation, “i love the openai team so much.”

Was he implying he loved them enough to hire them for a new venture that would be swimming in venture cash? As that’s how so many startups launch— by hiring people from the last company — I’m going to say yes.

All of which means that the biggest potential loser of Altman being fired wasn’t Altman. And it wasn’t OpenAI employees.

It’s Microsoft and CEO Satya Nadella.

“OpenAI is like Mahomes to the Chiefs. Nadella recognizes this and losing Sam is not an option. This OpenAI board is way over its head and the failed coup is now backfiring,” investor Dan Ives, an analyst at Webush, told Business Insider on Sunday, before the news of Nadella’s hiring coup was announced.

Microsoft has invested a reported $10+ billion dollars and owns a sizeable stake — some reports say as much as 49% — in a for-profit unit run by the non-profit OpenAI. (Although Microsoft has never publicly confirmed the size of that stake.)

The OpenAI non-profit was run by a six-person governing board who owned no equity and included Altman and Brockman. So a simple majority vote was all it took to fire Altman and install CTO Mira Murati as interim CEO. (Murati also publicly supported Altman with heart emojii X posts, and is already out as interim CEO, replaced by former Twitch CEO and cofounder, Emmett Shear.)

OpenAI only gave Microsoft a few minutes advance warning before announcing Altman’s ouster, sources told Business Insider.

Until Friday, Microsoft’s deal with OpenAI was a major coup for Nadella, giving Microsoft deep access to the technology at the center of AI, while preventing its competitors from doing the same.

But when the prospect of Altman leaving to form a new AI startup loomed, one that he could certainly easily fill with the people who know the secrets of OpenAI technology, Microsoft looked to in big trouble.

Because a startup like that would have likely sought out another cloud investor/partner. Generative AI needs massive, specialized compute power to perform, especially to perform for millions of customers. Google or Amazon would almost certainly try to make Altman a deal he couldn’t refuse.

“The biggest worry is the Altman sweepstakes end up in the Google or Amazon backyard which would be a nightmare for Microsoft,” Ives wrote in a research note, before the news of Nadella’s coup was announced.

The issue wasn’t just the money invested, and the gains of that investment, that would be lost for Microsoft.

Microsoft has been baking OpenAI technology into pretty much all of its major products, and beating its rivals to market.

Earlier this month the company made over 100 announcements of integrations with OpenAI tech across Microsoft’s AI tools, AI models, tools in its cloud, the company told Business Insider. It put Copilot — its chat assistant based on GPT — everywhere.

But Microsoft has also been making cuts, or outright winding down, various other internal homegrown AI projects to lean into OpenAI tech, sources have told Business Insider.

It shut down various “industrial metaverse” projects and laid off staff, as BI previously reported. That homegrown “industrial metaverse” had been a key AI strategy before ChatGPT took off like it did this year.

And that meant (and might still mean) that if OpenAI up and implodes, Microsoft doesn’t have a fast backup plan.

Even as Nadella hires Altman and team, Microsoft still needs OpenAI.

On Monday, Nadella reiterated that its commitment to the OpenAI entity, whatever will become of it, stands. “We remain committed to our partnership with OpenAI and have confidence in our product roadmap, our ability to continue to innovate with everything we announced at Microsoft Ignite, and in continuing to support our customers and partners,” he wrote.

While the 500 employees are still hoping that their mass departure threat might fix the current OpenAI train wreck and bring Altman back, various reports — and just plain common sense — say that Altman won’t come back. There might be a small chance if the management structure of OpenAI is altered. But that turned out to be a bigger lift for a weekend negotiation, and possibly longer term, than even Nadella could pull off.

In any case, for Microsoft, it doesn’t matter now. Nadella just hired the golden goose, while still having nearly exclusive access to the golden eggs it previously laid.

OpenAI may, or may not, recover. But Nadella’s ambitious to continue to beat its rivals in all things generative AI certainly has.

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