In recent months, rumors have been rampant about OpenAI transitioning to a for-profit organization, and new information reveals that the biggest obstacle to this transition is its top financier, Microsoft. Key issues, including how to define the realization of Artificial General Intelligence (AGI) and revenue sharing with Microsoft, must be resolved.

In October of this year, media reports surfaced that a clause in the contract between OpenAI and Microsoft stipulates that if OpenAI develops AGI, Microsoft will be unable to use OpenAI's technology. This clause aims to ensure that giants like Microsoft do not misuse AGI technology. The issue is that, according to the clause, OpenAI's Board of Directors can decide when AGI will be realized. Earlier this month, reports indicated that OpenAI is in discussions with Microsoft to abandon this AGI clause, thereby unlocking investment potential.

On Thursday, December 26, Eastern Time, The Information reported that without a new agreement, Microsoft will be unable to use the technology developed by OpenAI once it reaches the AGI stage, leading to speculation that OpenAI issued a threat of having already achieved AGI to escape its obligations to Microsoft.

After all, earlier this month, Altman stated plainly: "I guess we will achieve AGI faster than most people in the world imagine, and its significance will greatly diminish." A post on Reddit indicated that Altman also mentioned he and his colleagues at OpenAI believe that AGI can be achieved using currently available AI Chips.

However, reports pointed out that under the existing agreement, OpenAI will not reach AGI anytime soon. The report mentioned that a non-public agreement reached between Microsoft and OpenAI last year defined AGI as occurring only when the systems developed by OpenAI can provide the earliest investors, such as Microsoft, with the maximum total profit due, totaling around $100 billion.

OpenAI has stated that to balance shareholder returns with ethical and social goals in developing AI for the benefit of humanity, it has limited the profits that investors could achieve. Microsoft is entitled to a maximum profit of $93 billion. OpenAI had previously discussed with Microsoft the hope of increasing the annual profit cap by 20%, and if this increase occurs, the actual AGI profit target could approach $120 billion.

Currently, OpenAI is still losing billions of dollars a year. Reports from two months ago indicated that OpenAI informed potential investors that it expects to incur a loss of $14 billion in 2026, three times this year's loss, and that it won't achieve its first annual profit until 2029.

It is currently unclear how OpenAI's transition to profitability will change the definition of AGI. Reports on Thursday indicated that insiders revealed some Microsoft leaders hope that even if OpenAI announces it has achieved AGI, Microsoft will still gain access to OpenAI's technology, and discussions will take place between Microsoft and OpenAI.

Four major challenges: Shareholder equity, exclusive Cloud Computing Service supply, intellectual property, and a 20% revenue share.

Thursday's report from The Information also stated that since around October, OpenAI and Microsoft have been discussing potential structural changes at OpenAI, focusing mainly on four aspects: Microsoft's equity in OpenAI; whether Microsoft will continue to be OpenAI's exclusive Cloud Computing Service supplier; how long Microsoft will retain the right to use OpenAI's intellectual property in OpenAI's products; and whether Microsoft will continue to take a 20% cut of OpenAI's revenue.

This is not the first time reports have surfaced regarding OpenAI considering changing its profit-sharing arrangements with Microsoft after a future transition. In October, Wall Street Journal cited media reports about OpenAI and Microsoft discussing how to allocate profits when OpenAI becomes a for-profit company, how much equity Microsoft should receive in return, and equity distribution being one of the biggest challenges, especially given the difficulty in determining OpenAI's valuation. Additionally, other complex issues regarding rights to future profits need to be discussed.

According to the current structure, OpenAI's non-profit Board of Directors oversees its for-profit subsidiary, which is responsible for developing ChatGPT and other technologies. The board consists of nine members, including CEO Sam Altman. In just four to five days last November, OpenAI experienced a power struggle where Altman was suddenly dismissed by the board and then returned with a newly formed board, exposing how fragile this organizational structure is.

Media reports indicate that since then, Altman has been pushing for OpenAI to completely part ways with the non-profit organization alongside some investors in OpenAI's for-profit subsidiary.

Thursday's reports pointed out that negotiations between OpenAI and Microsoft reflect that as OpenAI's business accelerates, it becomes increasingly unacceptable of the contractual terms previously agreed upon with Microsoft, including OpenAI's 20% revenue sharing and the dependency created by Microsoft being the exclusive Server supplier.

Reports suggest it is currently unclear when OpenAI and Microsoft plan to complete their transition to a for-profit organization, but time is of the essence. If OpenAI fails to make changes within the next two years, recent investors can reclaim their investments and OpenAI would also have to pay 9% interest, amounting to approximately $7.2 billion. OpenAI's leadership has also informed employees that OpenAI hopes to buy back some of their shares after the transition, giving them ample reason to desire a swift transition.