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Many of those employees will be dissapointed. MS says they extend a contract to each one but how many of those 700 are really needed when MS already have a lot of researchers in that field. Myabe the top 20% will have an assured contract but th rest is doubtfull will pass the 6 month mark.

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Microsoft gutting OpenAI's workforce would really make no sense. All it would do is slow down their work and slow down the value and return on investment for Microsoft.

Even if every single OpenAI employee demands $1m/yr (which would be absurd, but let's assume), that would still be less than $1bn/yr total, which is significantly less than the $13bn that MSFT has already invested in OpenAI.

It would probably be one of the worst imaginable cases of "jumping over dollars to chase pennies".

Microsoft has already done major layoffs over the last year of their own employees. Why wouldn’t they lay off OpenAI employees?

You're basically asking "why would a company lay off employees in one business unit and not another?"

To which the answer is completely obvious: it depends on how they view the ROI potential of that business unit.

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