OpenAI proposes a new corporate structure - Sync #500
Plus: Nvidia's next move; the state of AI hardware startups; "AI factories" for war; BYD enters humanoid robot race; ChatGPT Search vs. Google Search; and more!
Hello and welcome to Sync #500!
First of all, Happy New Year! Secondly, this is the 500th issue of Sync. Such a milestone offers a chance to reflect on nearly 10 years of writing a weekly newsletter and to look ahead to the future, which I’ll be sharing with you soon in a separate post.
In this 500th issue, we’ll take a closer look at OpenAI’s proposed new corporate structure, the reactions it has sparked, and its potential impact on the tech world.
In other news, Nvidia is already eyeing the next big thing after AI—robotics. Meanwhile, Google CEO Sundar Pichai has urged employees to prepare for a transformative 2025. We also have a comparison between ChatGPT Search and Google Search, an overview of how AI performed in the recently concluded Advent of Code 2024, and an analysis of the state of AI hardware startups.
Over in robotics, Figure AI has shipped its first humanoid robots to a paying customer, and BYD has entered the humanoid robotics race.
We’ll conclude this week’s issue with a look at what to expect from mRNA vaccines in 2025 and with a company promising to bring underwater habitats—where people can live and work tens or hundreds of metres below the surface—a step closer to reality.
Enjoy!
OpenAI proposes a new corporate structure
The last three years have been a time of massive growth for OpenAI. The AI lab went from a startup known primarily within the tech and AI community into a poster child of the current AI boom.
However, such massive growth requires massive transformation. OpenAI is no longer the same company that released ChatGPT in November 2022 as an experiment. The company's leadership has changed. Many key people, such as Mira Murati, former CTO, and Ilya Sutskever, co-founder and former chief scientist, left the company. Meanwhile, hundreds of new employees have joined, all contributing to a shift in the company’s culture and priorities.
Over the years, OpenAI has changed. Now, facing new challenges as a leader in the AI space valued at $157 billion, OpenAI proposes to change itself once again. However, OpenAI is going against some powerful forces that could prevent its plans from happening.
How did we get here
OpenAI began as a non-profit organisation, founded in 2015 with the goal of ensuring that artificial general intelligence (AGI) benefits all of humanity. However, OpenAI’s leadership realised that the nonprofit structure, which reflected the altruistic spirit and ideals behind its creation, was incompatible with the goal of building AGI.
The research and development of advanced AI models require an enormous amount of computing power—first to train the models and then even more to deploy them at scale to millions of users (OpenAI has 300 million weekly users). A non-profit organisation was not attractive to investors, who seek returns on their investments. Consequently, OpenAI began exploring ways to transform itself into a for-profit company.
Email conversations revealed by both Elon Musk’s legal team and OpenAI indicate that discussions about transforming OpenAI into a for-profit company began as early as 2017. In 2019, OpenAI announced a new corporate structure in which a for-profit entity ("OpenAI LP") is controlled by a non-profit board, with capped profit-sharing for investors and employees. This rather unusual hybrid corporate structure represents a compromise between the harsh reality that a tech company needs to operate as a for-profit entity to attract investments and the nonprofit model that embodies OpenAI’s original spirit.
The capped-profit structure served OpenAI well. It made the company more attractive to investors, who poured over $20 billion into it, including half of that amount secured in October 2024 ($6.6 billion from a Series B funding round and $4 billion borrowed from banks). This approach paved the way for ChatGPT and the current AI boom we are experiencing today.
However, those billions raised for building AGI are not enough. Reports published in the summer of 2024 revealed that OpenAI was on track to lose approximately $5 billion that year. The investments needed for the research and development of new models, as well as securing the computing power required to train and deploy them—whether through renting or building dedicated data centres—will demand even more resources and many more billions of dollars.
To address these challenges and position itself for a successful future, OpenAI plans to once again change its corporate structure.
OpenAI’s new corporate structure
OpenAI has announced its intention to transition its for-profit arm into a Delaware Public Benefit Corporation (PBC) by 2025. “As we enter 2025, we will have to become more than a lab and a startup — we have to become an enduring company,” states OpenAI.
According to OpenAI, the PBC model is the solution to balancing shareholder interests, stakeholder priorities, and public benefits in its decision-making, potentially offering a middle ground between traditional for-profit goals and its founding mission.
Unlike traditional for-profit companies, which are solely focused on maximizing shareholder value, PBCs are legally required to balance profit-making with its stated public benefit. For OpenAI, this means ensuring that its mission of advancing AI to benefit all humanity remains central to its operations, even as it raises capital and grows its business.
The for-profit entity will adopt a PBC structure, allowing OpenAI to raise capital with conventional equity terms while maintaining a commitment to public benefit. The non-profit will retain significant equity in the PBC, providing it with substantial resources to fund charitable initiatives in sectors like health care, education, and science. The non-profit's influence will shift away from controlling the for-profit to focusing on its charitable initiatives and ensuring that OpenAI’s mission of benefiting humanity remains central.
The tough road ahead
OpenAI plans, however, have been met with criticism and opposition.
Critics argue that OpenAI’s new corporate structure will prioritise investors and revenue over the company’s original mission of building AIG that benefits all of humanity. Others raised concerns that the transition could exploit non-profit tax benefits while operating as a for-profit entity.
The strongest opposition to OpenAI’s plans comes from Elon Musk. Musk, one of OpenAI’s founders and a significant financial supporter in its early days, left the organisation in 2018 due to differences in visions for its direction and priorities. Since the release and subsequent success of ChatGPT, Musk has become a vocal critic of OpenAI.
In March 2024, Musk filed a lawsuit against OpenAI and its leadership, claiming that the organisation has strayed from its original non-profit mission of advancing AI for public benefit by prioritising profit through its collaboration with Microsoft. Musk argues that this shift undermines OpenAI’s commitment to open-source development and public welfare. The lawsuit seeks to realign OpenAI with its founding principles—a move which, if successful, would effectively end OpenAI as we know it today and dramatically limit its funding options.
Although Musk calls in the lawsuit for OpenAI to return to its non-profit roots, it is worth noting that he is also an owner of xAI, a competitor to OpenAI, which complicates his position. Reducing OpenAI’s market presence would undoubtedly benefit xAI.
Other competitors also see an opportunity to curb OpenAI’s growth and influence in the AI industry. Meta has aligned with Musk, sending a letter to California Attorney General Rob Bonta and arguing that allowing the shift would have “seismic implications for Silicon Valley.” Meanwhile, Google has reportedly urged the US Federal Trade Commission to end OpenAI’s partnership with Microsoft, claiming the deal is “preventing them from competing in the burgeoning artificial intelligence market.”
The broader implications
No matter what happens with OpenAI’s restructuring plans, the impact on the tech industry and future startup founders will be profound.
OpenAI’s internal conflict between staying true to its ideals and navigating the realities of the modern business environment highlights that the romantic vision of a group of world-class researchers and engineers changing the world through a breakthrough invention alone is just that—a romantic vision. It demonstrates that achieving world-changing breakthroughs like AGI requires not only technological expertise but also substantial financial investments.
As one of the leading AI companies, OpenAI’s restructuring could set a precedent for how mission-driven organisations adapt to the demands of a competitive and capital-intensive market. It also raises important questions about how such transformative technologies should be governed and who should benefit from them.
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Amazing article. So much is going on. Thanks so much.