Microsoft Executives Expressed Concerns About OpenAI Partnership in 2017 and 2018

Court documents released this week from the ongoing Musk v. Altman trial show communications between Microsoft executives about a potential partnership with OpenAI in 2017 and 2018. OpenAI was then experimenting with AI-powered gaming bots, including one that defeated a Dota 2 professional player.

Shortly after that demonstration in the summer of 2017, OpenAI CEO Sam Altman responded to an email from Microsoft CEO Satya Nadella with a proposal for a larger collaboration. OpenAI sought substantial compute resources to expand the Dota 2 project, estimating a need for resources equivalent to $300 million at Azure list prices.

The request initially concerned some Microsoft executives. Jason Zander, then head of Azure, wrote in an August 2017 email that the numbers would require Microsoft to generate more than $500 million in incremental revenue directly from the deal. Several months later, Altman offered an alternative that included a partnership with Xbox around gaming and sharing technology and intellectual property in exchange for expanded support for the Dota research.

The Xbox team expressed interest in exploring collaboration but could not commit to the research costs on its own. In January 2018, Microsoft CTO Kevin Scott emailed Nadella about the proposal. Scott said he was uncertain what Microsoft would gain from the arrangement or how the Dota efforts would benefit the company.

Scott also raised the possibility of negative consequences if Microsoft declined to provide funding. "I guess the other thing to think about here is the PR downside of us not funding them, and having them storm off to Amazon in a huff and shit-talk us and Azure on the way out," Scott wrote.

He noted that OpenAI was building credibility in the AI community quickly, recruiting effectively, and becoming an influential voice. Scott added that he would prefer OpenAI to act as a promoter of Microsoft and Azure, though he questioned whether that benefit justified the requested support.

A year later, Scott told Nadella and Microsoft cofounder Bill Gates that he had been highly dismissive of AI efforts at OpenAI and Google DeepMind during their competition over game-playing achievements. Scott said he became more impressed after OpenAI shifted toward natural language processing models and grew concerned that Microsoft could fall behind Google in AI development.

Microsoft announced a $1 billion investment in OpenAI one month after Scott's January 2018 email. The partnership has evolved in the years since. The most recent change to the agreement was announced days after OpenAI told employees last month that its Microsoft deal had limited its ability to serve enterprises that use Amazon Bedrock.

The communications occurred as OpenAI and Google DeepMind competed to demonstrate advanced AI capabilities through game-playing systems. Scott later acknowledged his initial skepticism about those efforts in emails to Nadella and Gates.

The early discussions ultimately led to Microsoft's investment. Nearly seven years later, the relationship has shifted to allow OpenAI greater flexibility to work with other cloud providers including Amazon.