Microsoft Just Got Pregnant With Altman AI
The whole Article in one paragraph.
The mismatch that OPEN AI experienced as a disruptive tech juggernaut trapped in the body of a non-profit will morph into a new challenge at Microsoft: a disruptive tech startup trapped in the body of a huge, political, bureaucratic corporation. The governance challenges that Sam Altman faced at OPEN AI will reincarnate at Microsoft. The right balance between responsible stewardship and growth is as difficult as an intrapreneur as it is as an entrepreneur - even if you’re Sam Altman. In this article we break down what just happened and look at what lies ahead.
What began as the shocking firing of Sam Altman on Friday afternoon ended Sunday night as a shotgun wedding between Sam Altman and Microsoft. All of the analogies I’ve used in the past to describe the governance of new ventures inside huge companies: a walled garden, an annex, a bearhug, don’t do justice to what just happened with Microsoft and Sam Altman. The only way to describe it is as a pregnancy. Microsoft just got pregnant with Altman AI. As I write this right now 710 of OPEN AI’s 770 employees have signed a letter insisting that the remaining four members of the OPEN AI board resign and reinstate Altman as CEO, or they’ll follow him to Microsoft.
Take that ratio another way: just 8% of OpenAI’s staff believe wholly in the actual governance of the company, that being: safety over technology and growth.
For this article, I partnered with Matt Moscardi and Damion Rallis, two corporate governance experts (whose host the brilliant podcast “Business Pants”) to make sense of where we are and what’s happening next.
Where we are:
Sam Altman has more authority over OPEN AI at Microsoft than he did at OPEN AI.
Altman went from near zero equity at a mission driven non-profit to full throated option-loving capitalist. Microsoft’s stake in OpenAI means full license to the architecture for the cost of a mere $13bn in investment capital. Meanwhile, Microsoft’s stake in Altman and (likely) 707 of OpenAI’s 770 employees is likely to cost a truckload of cheap equity options and maybe a board seat. Think about that - from CEO of the company to virtual owner of the company, all by the grace of Microsoft’s backdoor acquisition. Reid Hoffman, founder of LinkedIn, who sits on the board of Microsoft, will be giddy to have Sam, who his foundation originally backed in the creation of OpenAI, sitting next to him.
Startup governance is hard. OPEN AI governance is dysfunctional.
Boardroom governance is set up to be the defense to management’s offense. It is intended to be the counterweight to “move fast and break things” management. But the keyword there is “corporate” - OpenAI wasn’t a corporate. It was a mission driven non-profit that pivoted to generational disruptive growth, without fully shedding its non-profit skin. The epic failure of the board in this case was that it did its original duty at a company that had long since pivoted to be a nearly $90bn juggernaut. Remember the 8% of employees who didn’t sign the letter? OpenAI hired technologists and capitalists to be governed by a non-profit board - the non-profit mission was destined to fail as Open AI grew exponentially.
If the OpenAI board does not relent, OPEN AI seems poised to reconstitute as Altman AI inside of Microsoft.
If Altman AI stays inside of Microsoft (still a big IF), here are three possible futures:
1. The semi-autonomous territory of ALTMAN AI
In this scenario Altman AI is essentially the same as other Microsoft acquisitions like LinkedIn, Activision Blizzard, and GitHub. It is a semi-autonomous business unit with its own CEO, and executive leadership team. Microsoft provides funding, technical infrastructure, and high-level executive oversight. In this scenario Altman AI likely does not have other investors or board members. The mission of Altman AI is continuity and growth. Reconstitute the capabilities of OpenAI within Microsoft, probably with a different brand. The company will shift OPEN AI’s customers to ‘Altman AI’ and continue the roadmap as before.
I put this as a 20% probability governance structure. LinkedIn or Activation Blizzard were never acquired with the intention of transforming the entire future of Microsoft. Certainly, not to the same magnitude as Altman AI.
But the acquisition of LinkedIn offers important signals about Sam Altman’s future inside of Microsoft and Microsoft’s ability to act as a responsible steward. LinkedIn founder, Reid Hoffman sits on Microsoft’s board of directors. Equally, LinkedIn is the most well governed social media platform - Microsoft has restricted the viral spread of hate speech and misinformation better than X, TikTok, Facebook or Instagram. This is an early signal that Microsoft would be willing to grant Altman a seat on the board, and that it will own its responsibility for AI safety.
2. The Bear Hug
In this scenario Altman AI is merged with Microsoft’s AI and Research Engineering unit, one of three Microsoft engineering units (the other two are Cloud and AI and Experiences and Devices). The Altman AI team will share an office with Microsoft’s AI and Research team. They will reshuffle the hierarchy to merge Altman AI. The roadmap between Microsoft’s AI and Research team will merge with the Altman AI roadmap. This scenario has enormous political and cultural risk. These sorts of integrations are why over 80% of M&A fails. Altman is undoubtedly a generational entrepreneur, but his only experience in a huge corporation was a small stint at Google after it acquired one of his first ventures. Turf wars will break out between legacy Microsoft employees and new Altman AI staff. These turf wars may result in distrust between Microsoft Office, Azure and Altman AI. People will quit and get fired. Some of the departed talent will join rivals. The fallout is hard to predict, and hard to control.
This scenario is a 20% probability. Microsoft and Altman AI have undoubtedly evaluated this scenario and determined that the political risk isn’t worth it. The risk of Altman AI’s growth being culturally suffocated by a huge corporation is too great.
3. The Walled Garden The first trimester of Microsoft and Altman AI’s pregnancy
In this scenario Altman AI is an autonomous business unit in the epicenter of the company, with its own executive leadership team. Its primary objective is to ensure the stability and continuity of OpenAI’s services. This business unit avoids the political messiness of merging with an already established Microsoft engineering unit. It continues to implement the product roadmap that was established at OpenAI. It has enough autonomy to keep moving fast, but enough connectivity to “fertilize” more of Microsoft.
In this scenario Altman AI assists every business unit within Microsoft that wants them to help. (similar to AWS, which originally began as an internally incubated cloud solution for Amazon.) There’s no urgency to integrate with an existing business unit, but there’s space for it to happen organically. The roadmap and responsibilities of Microsoft’s AI and Research team are distinct from Altman AI’s except when they choose to work together. I put this at a 65% probability. They will, invariably, start to work together. This collaboration will become the first trimester of Microsoft’s pregnancy with Altman AI.
4. The Second Trimester of the Walled Garden
In this scenario the Altman AI Walled Garden continues to grow and grow. OPEN AI is fully reconstituted as Altman AI. Open AI’s product roadmap continues at its pre-Altman-departure pace and OPEN AI’s clients become Altman AI customers. Over time, all Microsoft customers are de facto Altman Ai customers, as it infuses everything the company does. Altman becomes a CxO for Microsoft, and Nadella’s likely successor. Altman AI is so deeply infused into every Microsoft business that it becomes the company.
I believe this is the second trimester of the Walled Garden - if the Walled Garden succeeds. I put this at a 65% probability.
There’s a huge difference between life as an entrepreneur who supports a giant corporate partner and investor, and life as an intrapreneur who works for that company. Sam Altman and his team will find themselves surrounded by people who are more cautious, more political, and more motivated by career stability than a fierce determination to change the world. The mismatch they experienced as a disruptive tech juggernaut trapped in the governance body of a non-profit will morph into a new challenge at Microsoft: a disruptive tech startup trapped in the body of a huge, political, bureaucratic corporation.
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