I’ve been a technology analyst since the early 90s and I’ve seen company boards do a lot of stupid things mostly having to do with hiring the wrong CEO, then not recognizing the mistake soon enough to mitigate the resulting damage. Normally, the issue is that the board isn’t independent enough to do the job. But firing OpenAI’s CEO Sam Altman sets the record for bone headed stupidity.
OpenAI is a company of around 700 employees that was on track to become the most valuable company in the world, and in one move, the board of directors effectively killed it. Yes, it will take months or maybe more than a year for the company to fully fail, but already 500 of the 700 employees are threatening to leave due to this insane move unless Altman is brought back.
But now Altman can’t come back because, over the weekend, the OpenAI board didn’t agree with his reasonable (given what happened) demands, and now he is effectively building an OpenAI clone inside of Microsoft.
In the end, this should be a huge boon to Microsoft, and it will certainly provide a more stable environment for both OpenAI employees and customers, but right now, OpenAI is effectively redundant.
Let’s talk about that this week.
Killing the Golden Goose
There is an old fairy tale about a goose that laid golden eggs that I think defines what happened here. The OpenAI board was concerned about Altman’s direction. Whether that had to do with money or concerns that AI safety weren’t being properly addressed, the board moved decisively to remove Altman without first testing the waters in terms of how major clients like Microsoft would react (they were pissed), how investors would react, or how this news would be accepted by the employees, most of which are now planning to leave.
The kind of success that OpenAI has achieved is exceedingly rare. In terms of valuation, it was growing faster than any company of its type in history. You don’t muck with that kind of success, and you typically don’t get that kind of success unless a founder is involved.
Altman and his team were critical to the success of OpenAI and to the continued operation of the company. More important is that there is a massive shortage of people that understand and can work with generative AI, so operational employees are incredibly valuable. The removal of OpenAI’s leadership put a recruitment target on their backs and made them far more willing to take the related call and consider leaving.
Microsoft vs. OpenAI
OpenAI is a relatively small company despite its massive, estimated valuation. This means its ability to hold off competitors was limited. The Microsoft partnership did mitigate this somewhat but the decision, which Microsoft was left out of, to remove OpenAI’s leadership was likely seen as a breach of trust by that company.
To partially address this, Microsoft has hired Sam Altman to form what appears to be an OpenAI clone inside of Microsoft. Microsoft clearly has far more resources and is all in on ChatGPT, OpenAI’s AI product, and they should be far more capable of defending ChatGPT as a product than OpenAI could due to its size, reach, sales channels and government lobbying efforts. In effect, Microsoft is doing a very inexpensive (depending on any subsequent litigation) company acquisition where it’s only getting the people, but it has licensed the technology and should be clear to advance it.
Given this was predicated by an ill-advised move by OpenAI’s board of directors, Microsoft’s $10B investment in OpenAI (which it may not want to divest), and the willingness of OpenAI’s employees to make a move to another company, this was an impressive coup.
Microsoft moving decisively on what was likely a very tight window of opportunity is to its credit as, had it stopped to consider, Altman might have eventually either been hired by someone else or gone back to OpenAI.
Wrapping Up: The Litigation Wave
I expect there will be an impressive amount of litigation that will result from these moves. Given Microsoft has a relatively large and well-regarded legal team, it should be able to navigate this reasonably well. However, investors in OpenAI are undoubtedly pissed as their board effectively killed their golden goose.
There is a good chance that not only did OpenAI’s board end its company, but they may have ended their careers given the amount of visible damage this decision did to the firm and how it is now almost exclusively focused on this massive board mistake and not on Altman or anyone else.
This is a good lesson in tactical vs. strategic thinking. The OpenAI board clearly hadn’t thought things through and decided to use power to get Sam Altman to do something he didn’t want to do. Then, not realizing they should have been bluffing, terminated Altman doing potential terminal damage to OpenAI.
In short, Microsoft and Satya Nadella get praise for turning lemons into lemonade, and the OpenAI Board gets credit for potentially killing what might have been the most lucrative golden goose ever to have existed.
