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In this video, I break down Sam Altman's recent interest in transforming Open AI for a non-profit controlled company to a for-profit model.
Disclaimer: All opinions expressed in this video are my own and do not reflect the opinions of my employer.
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Profit Motive Section:
First, the most obvious, and that is that the company would be “for profit.” So there would now be a much bigger profit motive than when Open AI was operating as a non-profit. This of course produces increased commercial interests and also increases the pressure to generate profits.
Generating profits will by no means be very hard for OpenAI, but it does shift their priorities from their founding mission, which was to advance artificial general intelligence in a manner that benefits all of humanity. And this is because OpenAI's current business model is pretty unique, it uses a structure known as a capped profit model. Open AI is split into a nonprofit arm and a capped-profit arm. The nonprofit side makes sure that OpenAI sticks to its mission of building AGI that benefits humanity, and the for-profit side builds the tools to make that possible, while allowing minority investors to earn returns, albeit these returns are capped. Any profits that exceed this cap are either reinvested in the company or redistributed to the non-profit, at least for now. Switching to a strictly for-profit company allows all of the profits to go to the company, without a cap.
Governance and Control Section:
Next up is corporate governance and control. It is important to note that this nonprofit board had previously removed Sam Altman as CEO in November of 2023 due to concerns over lack of AI safety but Altman was quickly reinstated after a media frenzy from investors and employees.
If OpenAI shifts to a for-profit model, disbands its nonprofit board, and provides investors more influence in the company’s decisions, what would this mean for OpenAI’s mission of ensuring AGI benefits all of humanity'? It may soon need to switch its mission statement to that of benefiting shareholders, which to be clear, I am not against, I am just playing devil’s advocate. The loss of the nonprofit board's oversight of the company raises concerns about the new objective of OpenAI, and may just confirm the fears the non profit board had when they ousted Altman in November.
Access to Capital:
Transitioning to a lighter note, one of the primary benefits of OpenAI transitioning to a for-profit model means that it will make raising capital much easier. It makes them much more available not just to investors but also to the public markets down the road. But opening the door to more investment also creates a lot of pressure for substantial returns, especially at the astronomical $80 billion dollar valuation that OpenAI is already at.
OpenAI changing to a for-profit model is a precursor to what everyone on Wall Street has been drooling over since the first Chat GPT, and that is an Open AI IPO. However, there isn’t a ton of a need from OpenAI’s side to go public, as they are no short on cash, and also would then have to disclose a lot more information about their operations. So, we’ll see. They could opt to be more like SpaceX and just stay private..
Competitive Landscape:
Another pro for transitioning to a for profit board means that now, OpenAI is on the same playing field as some of their rivals. Anthropic and XAI are both for-profit companies, which ahas allowed them to get an edge in certain areas. So OpenAI transitioning to a for-profit model evens the playing field for that competition.
Transparency and Accountability:
And finally, the primary concern that triggered a lot of the headlines that we’re seeing, is the transparency and accountability. By no longer having to report to a non-profit board there is a potential reduction in transparency and public accountability measures. Remember, OpenAI is not a public company, so it doesn't have to disclose all of the information, like a public company and board would. So with this proposed new model, there could be a lot more happening behind the scenes that we will never know about. And that is something people aren’t quite comfortable with.