How Microsoft’s hiring of OpenAI’s Altman could reshape AI development

Following a dramatic departure of two key leaders from ChatGPT-maker OpenAI, Microsoft, a major investor in the startup, ended up a winner on Monday.

The Redmond-based tech giant said Monday it was hiring former OpenAI CEO Sam Altman and co-founder and former OpenAI President Greg Brockman, who left after Altman’s ouster Friday, to lead an in-house AI innovation lab.  

The news sent Microsoft stock to a record high Monday, signaling investors’ delight with the move, after a slump over the OpenAI turmoil on Friday.

Microsoft CEO Satya Nadella, who was reportedly “furious” about the ousting of Altman, announced Monday the hiring of the duo on the social media platform X. “We look forward to moving quickly to provide them with the resources needed for their success,” Nadella said. Later Monday, Nadella told Bloomberg when asked about a potential return of Altman to OpenAI, “irrespective of where Sam is, he’s working with Microsoft.”

Microsoft’s hiring of Altman and Brockman sparked surprise in the AI community as well as among investors and analysts who saw the move as likely to bolster Microsoft’s AI aspirations, lead to faster deployment of AI innovation and offer AI startups a reality check.

With its billions of dollars of investment in OpenAI, Microsoft has remained a step ahead of other tech companies since ChatGPT and artificial intelligence drew global attention about a year ago. Snapping up Altman and Brockman gives the tech giant an advantage in its race to increase its AI dominance over competitors including Google, said Rishi Jaluria, a managing director who covers software companies at RBC Capital Markets.

Microsoft is “still going to be working with the visionary,” Jaluria said, referring to Altman. “They’re going to continue being in a very strong position.”

S. Somasegar, a managing director at Seattle-based startup investment firm Madrona, also credited Microsoft for hiring Altman and Brockman to lead the innovation lab, despite reports that the former OpenAI leaders could found another startup.

“Microsoft gets a lot of credit for not panicking on Friday and sort of taking stock of what is happening, and really taking a constructive approach to figuring out how do we move forward on this in the best possible way,” Somasegar said.

AI impact

Altman’s move from OpenAI, which says “its principal beneficiary is humanity, not OpenAI investors,” could accelerate the deployment of AI innovation. This could be good news for other startups, but also intensify concerns about having guardrails around controversial AI technology.

For Jacob Colker, managing director at Seattle-based AI2 Incubator, which was founded at the Allen Institute for Artificial Intelligence, hiring Altman and Brockman will mean that the AI technologies they develop will be out in the market more easily without the complex OpenAI corporate governance structure. 

“There’s no complex web of reporting or structures that he now has to go through to do whatever he and the team want to accomplish,” Colker said in an interview Monday.

Regulation and responsible development of AI technologies might also be hurt by a quicker pace of innovation, said University of Washington professor of linguistics Emily Bender, who has spoken out about the need for AI accountability.

Bender said the Microsoft and OpenAI partnership involved huge “concentrations of financial capital and enormous data collection.” With Microsoft absorbing Altman and possibly other OpenAI employees, Bender said, there would be an intensification of the money and data collection by a private corporation without regulation or oversight. 

The Washington Post reported Monday, based on internal sources, that more than 700 of OpenAI’s roughly 770 employees have signed a letter threatening to quit unless the current board resigns and reappoints Altman.

“OpenAI getting halfway absorbed into Microsoft seems like more concentration, and on balance, that is not a good thing,” Bender said.

OpenAI is likely to feel the squeeze. After years of thriving on Microsoft’s investment and technology partnership, the AI company now faces an uncertain future. In his announcement Monday, Nadella signaled a continued collaboration with OpenAI and Emmett Shear, the ex-Twitch co-founder and CEO whom the board named interim OpenAI CEO. 

Microsoft’s incorporation of OpenAI into its technology could be the reason to keep the partnership going, said Somasegar.

Microsoft is also unlikely to pull out its existing investment in OpenAI, said Jaluria, but it’s uncertain whether the tech giant, which poured billions of dollars into the startup since 2019, will keep providing capital in the future. It’s also unlikely that Microsoft will try to acquire OpenAI because of antitrust concerns, Jaluria said. That’s also the reason the tech giant kept its stake in OpenAI’s for-profit arm below 50%.

What it means for AI startups 

For new startups in the AI industry, the OpenAI leadership turnaround and the reaction since Friday are both a cautionary tale and an opportunity. 

OpenAI’s board structure didn’t allow for Altman to have the typical “dual-class structure” that protects CEOs from being ousted, Jaluria said. Tech giants such as Meta have such structure.

The board, then, had the authority to fire Altman without having to answer to investors such as Microsoft.

Jaluria said that new startups will have to consider corporate structures that protect CEOs. 

On the upside, the turmoil at OpenAI can create opportunities for startups that build their AI models, according to Colker. They can reach out to other startups that might switch from OpenAI’s software interface because of instability.

“Instability at a place like that, that you’ve built your startup on top of, is never a good thing for anybody who’s trying to build a business,” Colker said. “You need stability in your technologies.”

One of the sources of instability for OpenAI is the state of the board of directors and change in the chief executive position from Altman to chief technology officer Mira Murati on Friday, then to Shear, who Somasegar said might lack the experience of an insider to lead OpenAI.

Colker said he recognizes that OpenAI changed the world with new technologies. 

“Sam and team have changed the world for sure,” Colker said. “And I think anybody that works in this space can look at what they’ve accomplished with a lot of respect and a lot of appreciation.”