5 Questions Raised by OpenAI’s For-Profit Shift

Arguably one of the least nonprofit of nonprofit entities to ever exist, OpenAI’s transition to a for-profit company began in earnest with last week’s announcement that it has raised $6.6 billion in venture capital funding.

OpenAI has operated since 2015 as a nonprofit research institute, and it later added a for-profit arm that sells commercial products. The for-profit subsidiary has been under the control of the nonprofit’s board of directors, who govern it in accordance with OpenAI’s mission of adhering to “uncompromised principles of safety and broad benefit in its research and deployment efforts” of artificial intelligence. Its backers now include some of the biggest brands in the technology industry, including Microsoft and Nvidia.

However, even though for-profit status seems more consistent with what OpenAI is, the complex transition process raises some tough questions for the ChatGPT developer. Here are five of them.

Does this help Elon Musk’s lawsuit against the company?

Not surprisingly, the electric-vehicle pioneer and X chief executive is involved with another high-profile project in the tech sector – this one focused on AI. Even less shocking: The situation between Musk and OpenAI is contentious, as we reported in August.

Musk claims he was misled into believing OpenAI would remain a nonprofit when he helped finance it at the time of its founding. If his version of events is accurate, a transition to a for-profit company would seem to bolster his case. Open AI says it’s not. (It’s worth noting that Musk launched an AI venture of his own, xAI, in 2023.)

Is OpenAI stealing?

Musk’s lawsuit points to another fault line OpenAI is creating by going for-profit. One of its unique hallmarks has been a cap on profits available to investors. Once their returns reached 100 times their investment stakes, the rest of their profits would be directed to the OpenAI nonprofit.

With the shift to for-profit status, the cap is out the window; therefore, investors stand to accrue significant profits going forward. That money would have gone to a nonprofit entity created to serve the public under OpenAI’s original structure. Maybe it’s all legal, but it certainly sounds and feels a bit fishy.

What about antitrust law?

The Biden administration’s campaign to put some teeth back into the enforcement of antitrust law has a mixed record of success, but it has trained the public’s focus on the potential for anti-competitive business practices in the tech industry. As the largest investor in the for-profit enterprise, Microsoft may find its share of OpenAI’s future profits converted into a major equity stake when the transition is completed. Talk about a red flag for antitrust enforcers.

Is OpenAI scared of its rivals?

While we’re on the subject of healthy competition, OpenAI is supposedly trying to discourage it. According to a report from Reuters, it is asking investors not to invest in five companies OpenAI considers to be its competitors. If you can believe it, one venture reportedly on the list is Musk’s xAI.

Will OpenAI go public?

The chief executive of one of the institutional investors in OpenAI is calling on OpenAI to move forward as a publicly traded company. Following the news of OpenAI’s mammoth fundraising, Altimeter Capital CEO Brad Gerstner said it is “critically important” for everyday investors to have an opportunity to share in the financial benefits of AI technology. Moreover, Gerstner argued the transparency required of public companies is a must for companies developing AI applications.

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Notably, OpenAI has two years to complete its conversion to a for-profit company. That seems like a long time to sort out these questions, but not when the answers may be so complicated.