OpenAI and Microsoft reach tentative deal to revise partnership

• Now CEO Sam Altman has a chance to move forward with changes that both he and his investors believe are key to meeting the company's vast capital needs — and avoiding a replay of the boardroom drama two years ago that saw Altman fired and then rehired within days.

The big picture: OpenAI and Microsoft have one of the most high-stakes business partnerships in history. The software giant has spent billions to get first dibs on the ChatGPT maker's technology.

• However, the years-old partnership has strained as OpenAI has grown, with both companies competing for customers and OpenAI seeking more compute capacity than even mighty Microsoft could provide.
• Tensions have emerged around other terms, including one that would limit Microsoft's access to OpenAI technology once the company reached the vaguely defined milestone of "Artificial General Intelligence."

What they're saying: "OpenAI and Microsoft have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership," the two companies said in a joint statement. "We are actively working to finalize contractual terms in a definitive agreement."

• "Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety."
• The companies declined to comment beyond the statement or reveal any of the revised terms.

Between the lines: One complicating factor in the relationship has always been OpenAI's unusual structure.

• It was founded as a nonprofit entity, and later set-up a capped profit subsidiary to pave the way for Microsoft and others to invest.
• However, that was still more constraining than a traditional corporate structure, especially as the company has sought to raise billions — or even trillions — of dollars in the coming years.

As part of recent investment rounds, the company pledged to investors it would convert itself into a for-profit entity, giving the nonprofit entity a stake in the restructured company.

• But in May, Altman told employees that the current nonprofit would remain a key part of the company's structure while the for-profit company would be organized as a public benefit corporation, which allows its board to consider other goals besides shareholder return.

In accordance with that plan, OpenAI chairman Bret Taylor said in a separate statement that the OpenAI nonprofit would retain control over the for-profit entity, and would have a stake in the for-profit worth more than $100 billion.

• Taylor said discussions with attorneys general in California and Delaware are ongoing.

Zoom in: In the Microsoft-OpenAI negotiations, both sides appear to have gotten enough of what they wanted to move forward, according to sources.

• Microsoft wanted to lock down continued access to OpenAI's technology and products.
• OpenAI wanted the freedom to move forward with its restructuring needs and to look beyond Microsoft for cloud providers.

Zoom out: The deal must still be approved by regulators, and opponents, including a variety of charitable institutions, have called on them to block the deal.

• Elon Musk has also sued to stop the restructuring.

By the numbers: Microsoft shares rose 2.4% in after-hours trading after the deal was announced.