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OpenAI schism leads to Sam Altman’s ousting — and an opening to rivals

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The upheaval that hit the top ranks of pioneering AI company OpenAI on Friday has brought something that, only a day before, would have been hard to imagine. Leadership in generative artificial intelligence, the tech industry’s most important innovation in years, has suddenly been thrown into question — and a scramble now seems likely as new alliances form around some of the AI industry’s most prominent names.

The San Francisco-based company behind ChatGPT shocked the tech world with the abrupt announcement that it had forced out chief executive Sam Altman, who had become the public face of AI since the launch of the AI-powered chatbot nearly a year ago.

OpenAI said Altman had not been “consistently candid in his communications with the board”, but did not provide further details.

Microsoft, whose close partnership with OpenAI has led to the technology behind ChatGPT being embedded in some of the most widely used software products, moved quickly to try to protect its investment of more than $11bn in the company. CEO Satya Nadella insisted that it was business as usual, with Microsoft continuing to have full access to all of OpenAI’s technology and no change to the long-term agreement between the two companies.

However, more high-level departures from the pioneering AI company later in the day, along with signs of a schism in OpenAI’s board and senior leadership, threatened greater upheaval. And by Friday evening, a number of senior tech executives and financiers had thrown their support publicly behind the departing OpenAI executives, raising the prospect of a rival AI venture and further departures from OpenAI.

The suddenness of Friday’s upheaval caught Microsoft and other OpenAI investors by surprise — as well as Altman himself. Only the day before, the OpenAI boss had taken to the stage at a gathering of Asian political leaders in San Francisco to discuss AI. And less than two weeks ago, he laid out his most ambitious business plans yet for taking OpenAI’s technology into the mainstream, including the launch of an online store for a new class of customised chatbots that could one day present a challenge to Apple’s App Store.

Microsoft found out that Altman had been forced out of the company only “minutes” before the news was broadcast to the world, according to a person familiar with the situation. Even then, it was given no more information than OpenAI released publicly, even though its giant investment and close technology partnership have done much to shape the new era of generative AI. 

OpenAI had said earlier in the day that co-founder and president Greg Brockman would step down from his other role as chair, but continue working at the company. Less than four hours later, however, Brockman wrote on X that he had also quit. He also claimed that the board had sacked Altman, with no warning, in a video meeting that took place only 30 minutes before the decision was publicly announced.

The pair used posts on X to thank backers in the tech industry who had publicly supported them and hint at new ventures, though neither said why the board had moved against Altman. “Greater things coming soon,” Brockman wrote.

The upheaval has left Ilya Sutskever, OpenAI’s chief scientist, as the only remaining member of the core founding group that created the AI company eight years ago. The idea for OpenAI came at a meeting in Brockman’s apartment, and the group’s main backers from the outset were Altman, who later also became CEO, and Elon Musk, who quit after a tussle over control of the company. Sutskever, along with OpenAI’s three non-executive directors, had taken the initiative to push Altman out, according to Brockman.

A number of prominent Silicon Valley figures quickly aligned themselves with the ousted OpenAI founders, with tech executives including Airbnb’s Brian Chesky expressing their support.

Eric Schmidt, the former Google CEO who has become a leading backer of the latest generation of AI start-ups, took to X to praise Altman for building a company “from nothing to $90 Billion in value”, adding: “I can’t wait to see what he does next.”

Alfred Lin, a partner at venture capital firm Sequoia, which has a small stake in OpenAI, hinted even more heavily at an interest in backing any future start-ups from Altman and Brockman, saying of the pair: “Look forward to the next world-changing companies that @sama and @gdb build.”

Altman “likely remains a shaping force within software and AI markets”, said Fred Havemayer, an analyst at Macquarie. Depending on the exact circumstances that led to the split, other staff from OpenAI could follow him, he wrote in a note to investors.

For Microsoft, meanwhile, the sudden bust-up at the top of OpenAI has left a question over an alliance that until Friday had brought it a clear lead over the rest of the software industry.

Software analysts said the fallout at OpenAI was not likely to cause any immediate disruption to Microsoft’s products or services, since its deal with OpenAI guaranteed it use of the AI company’s models. Microsoft’s shares slipped 2 per cent after the news of Altman’s departure.

But Microsoft’s reliance on its close ties to OpenAI could still prove an issue in the “AI wars” that have broken out between the biggest tech companies, according to Matt McIlwain, a partner at Seattle venture capital firm Madrona. While Microsoft is heavily dependent on one company, rival Amazon Web Services has spread its bets between a number of AI companies, he added.

“I think this creates a window for AWS,” McIlwain said.

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