Monologue: OpenAI Was Never A Non-Profit

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1:11I'm your host, Ed Citron.

1:22Better Offline. And I know some of you are going to say, Ed, didn't you say we'd get a second part? Didn't you say we'd get a second part? Ed, where's the second part? It's coming tomorrow. You get a monologue as well. Good Lord, the complaints from some of you. Just kidding. You're all very nice. Now, because I deeply hate myself, I decided to sit down and read case 424-CV-04722-YGR from the United States District Court of, well, it's the Northern District of California. Nevertheless, what I'm talking about, of course, is Elon Musk's lawsuit against OpenAI filed in August, November of last year.

1:57There was an amended complaint. Nevertheless, Elon Musk is alleging multiple kinds of fraud as well as violations of the Sherman Act, a core anti-monopoly law from the late 1800s, which most notably was the same law that might lead to the breakup of Google's ad tech and search businesses. Elon Musk, he's suing, and he loves to sue. But in layman terms, Musk alleges that Sam Altman tricked him into funding OpenAI as a charity when he actually wanted it to be more like a for-profit entity, a classical startup model. Musk also alleges a conspiracy by OpenAI to stop people who invested in OpenAI from investing in other generative AI companies, specifically Musk's own AI, as long as others like Anthropic.

2:36This sounds like some Muskian bullshit, but this is actually true. It was reported by the information in other outlets. The lawsuit itself is contrived, including annoying things like Musk's lawyers referring to OpenAI's tax-exempt non-profit as a for-profit market paralyzing Gorgon. Just, you don't need to write like this, you fucking losers. Anyway, it is pretty interesting though, and it explores the deeply weird beginnings of OpenAI itself. To explain, OpenAI was originally founded in 2015 by Elon Musk, Sam Altman, and a selection of other engineers, specifically as a non-profit making open source artificial intelligence, and it was meant to be a research house.

3:16Now, another thing is it was specifically made as a reaction to Google's acquisition of artificial intelligence firm DeepMind. The plan, according to emails shared as part of the lawsuit, was to beat Google to the punch by making artificial general intelligence, you know, the entirely fictional concept of a conscious autonomous computer, and then they'd go and open source it, in what Sam Altman called an AI Manhattan Project. Just, I could go into the history there, but is that really what you want to compare this to? Anyway, anyway. yeah altman would go on to tell elon musk that the mission would be to create the first general ai agi and use it for an individual empowerment i.e the distributed version of the future that seems the safest more generally safety should be a first class requirement and that is a quote by the way with the technology owned by the foundation referring to open ai and use for the good of the world just a lot of bollocks really anyway things began to get tense in september 2016 when And Sam Altman arranged a deal with Microsoft to buy$60 million of compute for, well, for$10 million, in exchange for evangelizing Microsoft Azure as their preferred cloud provider, along with some sort of vague consultancy services over Microsoft's models.

4:31Musk would respond to the terms by saying, fine with me if they don't use the active messaging, it would be worth way more than$50 million, not seem like Microsoft's marketing bitch. Two months later, Microsoft would put out a blog post saying that OpenAI was choosing Azure as their primary cloud platform, and that OpenAI would become an early adopter of Azure N-series virtual machines, some of Microsoft's early GPU compute instances. It's been going quite a while. A year later, in an exhibit from the trial from September 20th, 2017, things would get a little more frayed, with Ilya Sutskeva, a gifted engineer recruited by Musk in OpenAI's earliest days, sending an email to both Musk and Altman sharing concerns about the future.

5:11Altman, worried about how much money it would cost to fund OpenAI, had been considering finding a way to make it a, wouldn't you guess it, for-profit entity. But Sutskeva had other problems and was far more worried about Altman and Musk. In the email, Sutskeva raised concerns that Elon Musk wanted unilateral absolute control over the AGI, and that while Musk had claimed otherwise, in negotiating how to keep OpenAI going, it was very clear that, and I quote, absolute control was extremely important to him. As an example, Sutskeva added that Musk had said that he needed to be CEO of the new company so that everyone would know that he was the one in charge, even though he also stated that he hated being CEO and would much rather not be CEO.

5:55Sutskeva added that Musk's concerns that there would be an AGI dictatorship run by Demis Hassabis, CEO of DeepMind, but that in the current structure that Musk was suggesting, he would become a dictator if he chose to. All very good stuff. Sutskeva bizarrely then immediately moved on to say something very, very similar to Sam Altman, saying that, and I quote, he didn't understand why the CEO title was so important, and that Sam Altman's reasons had changed, and that it was really hard to understand what was driving them. Sutskeva also added a question, and I quote, is AGI truly your primary motivation?

6:31How does it connect to your political goals. How has your thought process changed over time? Altman would reassure Musk both personally and through others that he remained focused on OpenAI's non-profit mission. In January 2018, Altman would suggest a ridiculous idea, selling cryptocurrency to fund OpenAI, which Musk would warn would simply result in a massive loss of credibility for OpenAI and everyone associated with the ICO, referring of course to an initial coin offering, a flimsy idea that just means just buy a bunch of tokens before the thing goes live basically how crypto works i guess it was a whole boom i'm not doing a fucking podcast about it let's move on musk would step down from open ai in february 2018 and a month later samuel would propose a fixed maximum term equity raise essentially selling stock in open ai but an associated entity yet it was still a non-profit at the time and that had a maximum amount you could make on buying it it's just very confusing.

7:30And what it basically means is, it means that they would create an entity on the side that you could raise money for, that would also own all the bits. I'll get to that in a second. Nevertheless, this is all extremely dodgy and weird. Around a year later in 2019, Sam Altman would eventually create the legally precarious for-profit arm of OpenAI, what I was just talking about. And it was called OpenAI LP. And immediately, according to Elon Musk's lawsuit transferred most of the company's assets and staff. The same year, OpenAI would strike an exclusive partnership with Microsoft to provide the compute for their models.

8:07As part of the deal, OpenAI would give Microsoft full license to use their pre-AGI intellectual property and research, which is to say literally everything they've ever made. And this would in turn make... Well, this is the funny, weird part. This is the really crazy... This is the part that really gets me. They would own everything. Microsoft would own everything until they hit AGI. Now, AGI at this point has been defined by OpenAI and Microsoft as when they hit$100 billion in profit. Every time I read about and talk about this stuff, I just think, who is the idiot here? Is it Satya Nadella? Is it Sam Altman?

8:44Or are they both just the kind of mediocre rich guy who just bounces their skulls together and they say, who has the shittiest idea. Who will be the dumbest boy today? Nevertheless, Microsoft owns everything OpenAI makes until they invent AGI, by which I mean they make$100 billion in profit. It's also goddamn stupid. It's also stupid. Now, at some point, I want to do an entire episode on this lawsuit because it's got so many exhibits and so many warring incentives. Elon Musk's XAI competes directly with OpenAI to make large language models that no one really needs and that cost more to run than they will ever make.

9:24And this lawsuit, as with others, features broad demands for discovery in depositions of people at LinkedIn co-founder and former OpenAI board member Reid Hoffman and attempts to name both Microsoft and Hoffman himself as co-defendants. Since filing the lawsuit, an Elon Musk-led consortium of buyers has offered$97.4 billion for the assets of OpenAI's charity, an offer that would require multiple different government agencies to approve, which OpenAI's board has now declined. Either way, while Musk is regularly full of shit, he's right about one thing. Sam Wattman clearly had no intention of ever keeping OpenAI as a non-profit, nor was he ever dedicated to doing so, or really anything other than making himself CEO and getting a billion dollars.

10:07Since 2019, OpenAI has raised over$20 billion in funding, and is reportedly raising as much as$40 billion in the next round, led by fucking Masayoshi Son of SoftBank. It's so good. I love it. And they're likely doing this because the company burned$5 billion in 2024 and is set to as much as double that in 2025, according to estimates. Musk's lawsuit is likely an attempt to interfere with this funding or to destabilize OpenAI at its weakest point. Its flimsy status as a non-profit that will require a great deal of legal effort to unwind if it's even possible at all. And I must be clear, it may not be possible.

10:44I don't think there's any precedent of anyone ever taking a non-profit of this size, of this weirdness, connected to like 20 different for-profit entities and turning it into a for-profit. And it just doesn't make sense. But I will tell you something that might make you happy or might just make you laugh, which is OpenAI only has a year and a half to do so. A year and a half to turn from a non-profit into a for-profit. because in a year and a half, all that equity they raise, but it's not equity, it's some weird for-profit sharing. Nevertheless, all the money they've raised in the last round, the six point something billion dollar one, yeah, it all turns into debt.

11:23Oh, well, I'm sure they'll work it out. They sure haven't yet.

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