OpenAI emails show that Elon Musk wanted a for-profit structure in 2017

OpenAI on Friday criticized Elon Musk, one of its founders, after the billionaire asked a federal court in November to block the maker of ChatGPT from becoming a fully for-profit company.

In a blog post on the OpenAI website titled “Elon Musk wanted a for-profit OpenAI Foundation,” the startup claimed that in 2017, Musk “didn’t just want profit, he actually created it” as the company’s proposed new structure.

“When he did not get a majority stake and full control, he walked away and told us we would fail,” OpenAI wrote in a blog post. “Now that OpenAI is the leading laboratory for AI research, and Elon runs a competing AI company, he is asking the court to prevent us from effectively pursuing our mission.”

Musk and xAI did not immediately respond to requests for comment.

Since Musk announced the emergence of rival OpenAI xAI in July 2023, the startup has released its Grok chatbot and raised as much as $6 billion at a $50 billion valuation, in part to purchase 100,000 Nvidia chips, CNBC reported on November 15 .

Musk has been questioning OpenAI's nonprofit model since day one, a member of OpenAI's legal team told CNBC.

“OpenAI’s architecture does not look perfect,” Musk wrote in a November 2015 email to OpenAI CEO Sam Altman, according to screenshots shared in the blog post. He added that having a “salary from a non-profit gets in the way of aligning incentives” and that “it's probably better to have a standard C corporation with a parallel non-profit.”

In a text conversation with former board member Shivon Zillis, Greg Brockman, co-founder of OpenAI, wrote that the conversation he had with Musk “turned into a conversation about structuring” and that Musk “said nonprofits were the right choice early on, and that they might not… “Be so.” Be the one now,” according to the blog’s screenshots.

Musk sent an article about China's strategy regarding AI research facilities to Brockman and fellow OpenAI co-founder Ilya Sutskever. Musk wrote that China “will do everything it can to get what we develop. This may be another reason to change course,” according to the blog post.

Brockman agreed, writing that starting in 2018, OpenAI's path should be “automated research + for-profit hardware,” according to the blog post. Musk replied, “Let's talk Saturday or Sunday. I have a rough game plan and I'd like you to implement it.”

Altman, Brockman, Musk and others negotiated terms for the for-profit OpenAI venture in the fall of 2017, but the talks broke down over disagreements over stock, control, and who would be CEO, according to the blog. Musk initially suggested he should “have unambiguous initial control of the company,” but said “this will change quickly” when the board has 12 to 16 members, per the screenshots.

Musk created a public benefit corporation called “Open Artificial Intelligence Technologies, Inc” in September 2017, according to screenshots included in the OpenAI blog post. A few days later, OpenAI rejected the terms Musk proposed for the for-profit and offered to continue the conversation, but Musk responded that his offer was “no longer on the table” and that “discussions have ended,” according to the screenshots.

In January 2018, Musk suggested it would revolve around OpenAI Teslahis electric car company, according to the blog.

“The only two paths I can think of are a major expansion of OpenAl and a major expansion of Tesla Al. And perhaps both at once. The first would require a significant increase in donated funds and highly credible people joining the board. The current position of the board is very difficult.” Weak “OpenAI is on track to fail compared to Google,” Musk wrote, according to the blog.

Brockman responded with a lengthy plan, including the idea that the company should “make every effort to remain a nonprofit,” according to screenshots. In February 2018, Musk resigned as co-president of OpenAI.

OpenAI debuted in 2015 as a non-profit, then in 2019 switched to a “for-profit” model, where the non-profit OpenAI was the governing entity of its for-profit subsidiary. The company decided to turn to a captive-profit structure in part because Musk stopped funding it, Altman said on stage Dec. 4 at The New York Times DealBook Summit.

Thanks to the viral spread of ChatGPT, which debuted in November 2022, OpenAI has become one of the most popular, and at times one of the most controversial, startups on the planet. The company's value has risen to $157 billion since the launch of ChatGPT. OpenAI has raised about $13 billion from Microsoft, and closed its most recent $6.6 billion round in October, led by Thrive Capital and featuring participation from chip maker Nvidia, SoftBank and others.

The company also obtained a $4 billion revolving line of credit, bringing its total liquidity to more than $10 billion. OpenAI expects losses of about $5 billion on revenue of $3.7 billion this year, CNBC confirmed in September with a person familiar with the situation.

OpenAI is now in the midst of a potentially two-year process to transform into a fully for-profit public benefit corporation, which could make it more attractive to investors. The restructuring plan will also allow OpenAI to retain its nonprofit status as a separate entity, CNBC previously reported.

OpenAI has faced increasing competition from startups like Musk's xAI and Anthropic, as well as tech giants like Google, Amazon and dead. The generative AI market is expected to reach $1 trillion in revenue within a decade, and business spending on generative AI will rise by 500% in 2024, according to recent data from Menlo Ventures.

Lawyers representing Musk, his startup xAI, and Zilis filed a preliminary injunction against OpenAI on November 29.

In their request for a preliminary injunction, Musk's lawyers argued that OpenAI should be prohibited from “profiting from ill-obtained competitively sensitive information or coordinating across the Microsoft-OpenAI board entanglements.”

The latest lawsuits represent an escalation in the legal dispute between Musk, OpenAI and Altman, as well as other long-time parties and backers involved, including technology investor Reid Hoffman and Microsoft.

In March, Musk filed a lawsuit against Open AI — and co-founders Altman and Brockman — in San Francisco state court, alleging breach of contract and fiduciary duty. In the suit, Musk claimed that the early OpenAI team set out to develop general artificial intelligence “for the benefit of humanity,” but the project was turned into a for-profit entity largely controlled by major shareholder Microsoft.

In June, Musk withdrew that complaint and later refiled it in federal court. Musk's lawyers in the federal lawsuit, led by Mark Toberoff in Los Angeles, argued in their complaint that OpenAI had violated federal racketeering, or RICO, laws.

In November, they expanded their complaint to include allegations that Microsoft and OpenAI violated antitrust laws when the maker of ChatGPT asked investors to agree not to invest in competing companies, including Musk's xAI company.

“Microsoft and OpenAI now seek to consolidate this dominance by denying competitors access to venture capital (a collective boycott), while continuing to profit from competitively sensitive information shared over years during the formative years of AI,” the lawyers wrote in the lawsuit. November deposit. They added that the terms OpenAI asked investors to agree to amounted to a “mass boycott” that “blocks XAI’s access to seed venture capital.”

Altman denied at the DealBook summit that OpenAI investors are not allowed to invest in competitors. Altman said investors are invited to do so, but the company will suspend their “rights to information,” such as sharing the research roadmap and other materials.

Microsoft invested nearly $14 billion in OpenAI but revealed in October that it would record a loss of $1.5 billion in the current period largely due to the expected loss from the AI ​​startup.

Microsoft gave up its observer seat on OpenAI's board of directors in July. However, the FTC will continue to monitor the two companies' influence on the AI ​​industry, CNBC reported.

— CNBC's Laura Kolodny contributed reporting.

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