Microsoft and OpenAI agree a financial definition of AGI of $100 Billion

OpenAI and Microsoft have a secret definition for “AGI,” an acronym for Artificial General Intelligence or any system that can outperform humans at most tasks – which was the original loose OpenAI definition of AGI. Recently, I’ve been talking about how Google DeepMind and OpenAI suggested that a new Turning Test for Artificial Intelligence (AI) should be based on an AI’s ability to build, run, and scale a highly profitable business – as well as build multi-billion dollar businesses which it's on track to do. So, perhaps the new definition, which is a commercial definition of AGI, shouldn’t come as much of a surprise.

According to leaked documents obtained by The Information, the two companies came to agree in 2023 that AGI will be achieved once OpenAI has developed an AI system that can generate at least $100 billion in profits – presumably by itself. And not only would this be a staggering feat making a new era of AI, but it would also have significant ramifications for the global economy – something else I’ve talked about recently as well but from a completely alternative angle.

The Future of Artificial Intelligence 2030, by Keynote Speaker Matthew Griffin

There has long been a debate in the AI community about what AGI means, or whether computers will ever be good enough to outperform humans at most tasks and subsequently wipe out major swaths of the economy.

The term “artificial intelligence” is something of a misnomer because much of it is just a prediction machine, taking in keywords and searching large amounts of data without really understanding the underlying concepts. But OpenAI has received more than $13 billion in funding from Microsoft over the years, and that money has come with a strange contractual agreement that the startup would stop allowing Microsoft to use any new technology it develops after AGI is achieved.

OpenAI was founded as a non-profit under the guise that it would use its influence to create products that benefit all of humanity. The idea behind cutting off Microsoft once AGI is attained is that unfettered access to OpenAI intellectual property could unduly concentrate power in the tech giant. In order to incentivize it for investing billions in the non-profit, which would have never gone public, Microsoft’s current agreement with OpenAI entitles it and other investors to take a slice of profits until they collect $100 billion. The cap is meant to ensure most profit eventually goes back to building products that benefit the entirety of humanity. This is all pie-in-the-sky thinking since, again, AI is not that powerful at this point.

It has been clear for some time that OpenAI does not care about public benefit, and the company has been looking to pivot into a for-profit structure, while maintaining its mission to benefit all of humanity, somehow, because the current non-profit structure makes it difficult to raise the huge amounts of money needed to compete. Consequently, The Information says Microsoft and OpenAI have been negotiating a host of changes to their arrangement that would go into place should the company restructure. Microsoft currently serves as OpenAI’s exclusive cloud hosting provider, and OpenAI may want to end that as well as stop profit-sharing and switch to simply giving Microsoft equity.

Microsoft and OpenAI have been on diverging paths for some time now. It was recently reported that the latter has begun incorporating AI models developed in-house into its 365 Copilot product in order to improve cost and efficiency. It doesn’t make sense for Microsoft to continue relying on OpenAI, an independent company developing similar productivity tools, for technology that it believes will be the backbone of its productivity software going forward. Especially with all the chaos and drama that has surrounded OpenAI. That is probably why it is not continuing to fund OpenAI. Microsoft needs its own proprietary tech to chart its own path.

OpenAI is far away from achieving that $100 billion in profit milestone - it is expected to generate $4 billion in revenue for 2024 - on technology whose true value remains speculative, which means under the current arrangement it would likely have to keep handing its technology and profits over to Microsoft for a long time. That is not great as they head towards becoming competitors and OpenAI seeks new investors. Getting rid of the cloud hosting tie-up could also allow OpenAI to negotiate better hosting costs with an alternative provider, something Google has told the FTC in a letter imploring it to nullify the agreement.

Elon Musk, a co-founder of OpenAI and former board member, has been suing to try and stop the company from converting into a for-profit entity. He has argued, among other things, that he invested roughly $50 million into the company in its early days believing it would be a non-profit in perpetuity, and now feels deceived. He has also complained in court that OpenAI pays exorbitant salaries in a way that is intended to thwart rivals and therefore anti-competitive. Because Musk has launched his own competing AI startup, xAI, skeptics think his lawsuit is a thinly veiled attempt at slowing down OpenAI’s growth.