OpenAI's Potential Shift To For-Profit Structure Under Discussion

According to Cointelegraph, OpenAI, the developer of ChatGPT, is reportedly in early discussions with regulators in California and Delaware to explore transitioning into a for-profit entity. The company, valued at $157 billion, has initiated talks with California Attorney General Rob Bonta's office and his Delaware counterpart, as reported by Bloomberg, citing sources familiar with the situation. In September, Reuters revealed that OpenAI was considering restructuring its core operations into a for-profit company, moving away from its current non-profit board control. A significant challenge in these discussions is determining the value of OpenAI's intellectual property, which includes its highly profitable large language model chatbot. The valuation process is complicated by California law, which mandates that the value assigned to nonprofit assets must be allocated to a charitable cause. OpenAI's primary assets are its intellectual property, adding complexity to the transition. A for-profit structure is seen as more appealing to investors compared to a nonprofit research organization. However, this transformation raises concerns about whether OpenAI, founded in 2015, is maintaining its original mission of developing AI products that are safe and beneficial to humanity. In May 2023, tech billionaire Elon Musk questioned the legality of the transition following his $50 million investment in the firm. Musk criticized OpenAI for shifting from an open-source, non-profit entity to a closed-source, profit-driven company, effectively controlled by Microsoft. Musk filed a lawsuit against OpenAI and CEO Sam Altman in February 2024 for breach of contract but withdrew it in June. Bret Taylor, chairman of OpenAI's nonprofit board, stated to Bloomberg that the nonprofit would remain part of any new corporate structure, ensuring it continues to thrive and receive full value for its stake in the for-profit entity. A spokesperson for Bonta's office emphasized the firm's commitment to protecting charitable assets for their intended purpose. OpenAI established a capped for-profit subsidiary in 2019 to support the high costs of AI model development. The company experienced a period of instability, including the brief firing and rehiring of CEO Sam Altman, as tensions rose on the nonprofit board over balancing AI safety with commercialization pressures. On October 23, long-time OpenAI safety researcher Miles Brundage resigned, expressing plans to start a new nonprofit or join an existing one focused on AI policy research and advocacy. In early October, reports indicated that OpenAI might not turn a profit until 2029, despite reaching $100 billion in revenue, as it is projected to incur a loss of about $5 billion in 2024.