OpenAI finds itself in an unenviable position against Microsoft

• Microsoft’s continuous introduction of OpenAI-driven business solutions on Azure, including Bing Chat Enterprise, poses a challenge.
• The overlap in AI offerings might prompt some of OpenAI’s clientele to consider Microsoft’s integrated alternatives, potentially leading to customer migration.

OpenAI’s relationship with Microsoft seems to be hitting a rocky period due to internal competition in the Generative AI field.

OpenAI and Microsoft partnered up from a commercial standpoint. The history of the partnership started in 2016 and consolidated in 2019, with Microsoft investing a billion dollars into the partnership and now Microsoft’s cumulative investment in OpenAI has reportedly swelled to $13 billion.

The partnership is widely perceived as a remarkable achievement, with the release of ChatGPT last year not only seeing resounding success but also sparking fresh conversations and opportunities around AI.

Nonetheless, OpenAI now grapples with the double-edged sword of its alliance with the industry titan, triggering both favourable outcomes and challenges, according to GlobalData.

Faces stiff competition

Beatriz Valle,Technology  Analyst at GlobalData, said that the OpenAI’s relationship with Microsoft seems to be hitting a rocky period.

Not only is Microsoft Azure locked in as OpenAI’s cloud provider, but Microsoft also plans to sell a new version of data firm Databricks’ software that helps customers make AI apps for their businesses, placing it in direct competition against OpenAI’s offerings.

Furthermore, Microsoft’s forthcoming AI-driven collaborative software, Copilot, will also compete with ChatGPT Premium.

 “Microsoft Azure is OpenAI’s exclusive cloud provider, powering workloads across research, products, and API services. This arrangement restricts OpenAI’s ability to partner with other public cloud providers, as its competitors have done. In addition, despite revenue growth from the premium ChatGPT release, substantial operational costs have rendered OpenAI increasingly dependent on financial benefactors,” she said.

Unenviable position

The potential internal competition is particularly troubling for OpenAI. For example, OpenAI customers currently paying $20 per month for the premium version of ChatGPT may decide to opt for the $30-worth version of Copilot by Microsoft when it is released.

Valle said that OpenAI has just released a powerful enterprise version of ChatGPT, targeting market expansion.

However, she said that Microsoft’s continuous introduction of OpenAI-driven business solutions on Azure, including Bing Chat Enterprise, poses a challenge.

“Microsoft’s strategy to seamlessly integrate Copilot with Office365 is appealing to its users. The overlap in AI offerings might prompt some of OpenAI’s clientele to consider Microsoft’s integrated alternatives, potentially leading to customer migration.”

Despite these challenges, OpenAI has been seeing some growth. Its solutions have been adopted by Duolingo, Morgan Stanley, the government of Iceland, Be My Eyes, Waymark, and Stripe.

In addition, OpenAI has made GPT-3.5 Turbo available for businesses to fine tune using their proprietary data and has just released an enterprise version of ChatGPT.

 “OpenAI finds itself in an unenviable position, both collaborating and competing against its powerful backer, Microsoft. However, it is still early days in the generative AI market, and it will take some time to gauge the level of adoption of offerings such as ChatGPT Enterprise. In the meantime, OpenAI remains in a somehow vulnerable position due to revenue imbalances resulting from the massive spend of its cloud computing usage,” Valle said.