I kind of thought that was the point of the current structure.
Yes, it is but if we only stopped the analysis right there, we could take pleasure in the fact that Sam Altman checkmated himself in his own blog post. "Dude, the non-profit is _supposed_ to control the profit company because that's how you formed the companies in the first place! Duh!!!"
To go beyond that analysis, we have to at least entertain (not "agree" but just _entertain_ for analysis) ... what Sam is saying:
- the original non-profit and profit structure was a mistake that was based on what they thought they knew at the time. (They thought they could be a "research" firm.)
- having a non-profit control the profit becomes a moot point if the for-profit company becomes irrelevant in the marketplace.
Here is a key paragraph:
>The hundreds of billions of dollars that major companies are now investing into AI development show what it will really take for OpenAI to continue pursuing the mission. We once again need to raise more capital than we’d imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness.
In other words, let's suppose the old Friendster social network was structured as "non-profit-board-controlling-a-for-profit-Friendster" like OpenAI. The ideals of the "non-profit being in control" is a moot point when a competitor like Facebook makes non-profit-Friendster irrelevant.
Or put another way, pick any hard problem today (self-driving, energy discovery, etc) that requires billions of investment and hypothetically create a new company to compete in that space. Would creating that company as a non-profit-controlling-the-profit-company confer any market advantage or would it be a handicap? It looks like it's a handicap.
OpenAI is finding it hard to compete for investors' billions in the face of Tesla's billions spent on 50000 GPU supercluster, Google billions spent on Gemini, Anthropic billions spent on Claude, Alibaba's billions, etc. OpenAI doesn't have an unassailable lead with ChatGPT.
The issue is Sam Altman & OpenAI look bad because he and the investors want to use the existing "OpenAI" brand name in a restructured simpler for-profit company. But to outsiders, it looks like a scam or bait-and-switch. Maybe they could have done an alternative creative procedure such as spin up a totally new for-profit company called ClosedAI to take OpenAI's employees and then pay a perpetual ip license to OpenAI. That way, CloseAI is free of encumbrances from OpenAI's messy structure. But then again, Elon Musk would still probably file another lawsuit calling those license transfers as "bad faith business dealings".
I’m not sure what the equivalent would be for llm products.
There’s no slavery here. If Sam decided it was a mistake to dedicate his time to a non-profit, he’s perfectly free to quit and start an entirely new organization that comports with his current vision. That would be the honorable thing to do.
To be clear, I don't think Sam can do anything and come out looking "good" from a public relations standpoint.
That said, Sam probably thinks he's justified because he was one of the original founders and co-chair of OpenAI -- so he feels he should have a say in pivoting it to something else. He said he got all the other donors on board ... except for Elon.
That leaves us with the messy situation today... Elon is the one filing the lawsuit and Sam is writing a PR blog post that's received as corporate doublespeak.
No. Non-profit is a deal between those founders and society. That he was an original founder is irrelevant. I don’t care about Elon, it’s the pivoting that’s inherently dishonorable.
Yes I get that but did OpenAI ever take any public donations from society? I don't think they did. It thought it was only funded by wealthy private donors.
>, it’s the pivoting that’s inherently dishonorable.
Would creating a new company (i.e. ClosedAI) that recruits OpenAI's employees and buys the intellectual property such that it leaves a "shell" of OpenAI be acceptable?
That's basically the roundabout thing Sam is trying to do now with a re-incorporated for-profit PBC that's not beholden to the 2015 non-profit organization ... except he's also trying to keep the strong branding of the existing "OpenAI" name instead of "ClosedAI".
The existing laws allow for non-profit 501c3 organizations to "convert" (scare quotes) to for-profit status by re-incorporating to a (new) for-profit company. That seems to be Sam's legal roadmap.
EDIT REPLY: They received benefits by dint of their status. If there were no such benefits
The main benefit is tax exemption but OpenAI never had profits to be taxed. Also to clarify, there's already a for-profit OpenAI Global LLC. That's the subsidiary company Microsoft invested in. It has the convoluted "capped profit" structure. Sam says he can't attract enough investors to that for-profit entity. Therefore, he wants to create another for-profit OpenAI company that doesn't have the convoluted ("bespoke" as he put it) self-imposed rules to be more attractive to new investors.
The 2 entities of non-profit and for-profit is like Mozilla Foundation + Mozilla Corporation.
[] https://www.google.com/search?q=conversion+of+501c3+to+for-p...
They received benefits by dint of their status. If there were no such benefits they wouldn’t have incorporated that way.
In any case, would creating a new company (i.e. ClosedAI) that recruits OpenAI's employees and buys the intellectual property such that it leaves a "shell" of OpenAI be acceptable?
There’s no problem with recruiting employees. The intellectual property purchase is problematic. If it’s for sale, it should be for sale to anyone and no one connected to a bidder should be involved in evaluating offers.
The existing laws allow for non-profit 501c3 organizations to "convert" (scare quotes) to for-profit status by re-incorporating to a (new) for-profit company. That seems to be Sam's legal roadmap.
Legal and honorable are not synonyms.
Was the non profit a way to just avoid tax until the time came to start making money?
You'd want to do it the other way around
It's also notable that this is in fact what the now vast majority of other OpenAI founders chose to do.
It doesn't look like one - it is one.
> We’re excited to welcome the following new donors to OpenAI: Jed McCaleb (opens in a new window), Gabe Newell (opens in a new window), Michael Seibel (opens in a new window), Jaan Tallinn (opens in a new window), and Ashton Eaton (opens in a new window) and Brianne Theisen-Eaton (opens in a new window). Reid Hoffman (opens in a new window) is significantly increasing his contribution. Pieter Abbeel (opens in a new window) (having completed his sabbatical with us), Julia Galef (opens in a new window), and Maran Nelson (opens in a new window) are becoming advisors to OpenAI.
The story is that OpenAI worked out some equity conversion of the for-profit co for the donors to the non-profit. Elon Musk was the notable holdout. Elon was offered some unknown percentage for his ~$40 million donation but he refused.
Seems like the donors are ok with OpenAI pivot to for-profit ... except for Elon. So no bait-n-switch as seen from "insiders" perspective.
If you have information that contradicts that, please add to the thread.
These people "donated to a non-profit". They did not "invest in a for-profit".
If the Red Cross suddenly turns into a for-profit and then says "well we'll give our donators of the past few years equity in our new company", this does not make it any less of a scam.
> Seems like the donors are ok with OpenAI pivot to for-profit
If you have information that shows this, feel free to add it. "Not suing" is not the same as that. Very few people sue even when they feel they're scammed.
Sure, nobody wants to be tricked into donating to a charity and then have their money disappear into a for-profit company.
Based on the interviews I saw from some donors (Reid Hoffman, etc), there's more nuance to it than that. The donors also wanted an effective non-profit entity. The TLDR is that they donated to a non-profit under 2015 assumptions of AGI research costs that turned out to be wrong and massively underestimated.
- 2015... the non-profit OpenAI in its original idea of "charity research organization" was flawed from the beginning because they realized they couldn't attract A.I. talent at the same level as Google/Facebook/etc as those competitors offered higher salaries and lucrative stock options. Then, they realized the initial ~$100 million in donations was also not enough to pay for very expensive hardware like GPUs and datacenters. It's hard for researchers to make discoveries in AGI if there's no cutting edge hardware for them to work on. A non-profit tech charity getting billions in donations was not realistic. These money problems compound and lead to...
- 2019... create the for-profit OpenAI Global LLC as a vehicle for the Microsoft investment of $1 billion and also create stock incentives for recruiting employees. This helps solve the talent acquisition and pay-for-expensive-hardware problems. This for-profit entity is capped. (https://openai.com/our-structure/)
(Side note: other non-profit entities with for-profit subsidiaries to supplement funding include Goodwill, Girl Scouts of America, Salvation Army, Mozilla, etc.)
We can't know all the back room dealings but it seemed like the donors were on board with the 2019 for-profit entity. The donors understood the original non-profit was not viable to do AGI work because they underestimated the costs. The publicly revealed emails that as early as 2017, Elon was also pushing to switch OpenAI to be a for-profit company.[1] But the issue was Elon wanted to run it and Sam disagreed. Elon left OpenAI and now he has competing AI businesses with xAI Grok and Tesla AI which makes his lawsuit have some conflicts of interest. I don't which side to believe but that's the soap opera drama.
Now in 2024, the 2019 for-profit OpenAI Global LLC has shown structural flaws because the next set of investors with billions don't want to put money into that LLC. Instead, the next investors need a public incorporated company with ability to IPO as the vehicle. That's where Sam wants to create another for-profit OpenAI Inc without the cap. We should be skeptical but he argues that a successful OpenAI will funnel more money back to the non-profit OpenAI than if it were a standalone non-profit that didn't take billions in investment.
[1] https://www.google.com/search?q=elon+musk+emails+revealed+op...
This feels like it's missing a really really important point, which is that in this analogy, the mission of the non-profit would be something like, "Make social media available to all of humanity without advertising or negative externalities", and the for-profit plans to do advertising to compete with Facebook.
The for-profit's only plan for making money goes directly against the goals of the nonprofit. That's the problem. Who cares if it's competitive if the point of the competition is to destroy the things the non-profit stands for?