I think this is one of the most interesting lines as it basically directly implies that leadership thinks this won't be a winner take all market:
> Instead of our current complex capped-profit structure—which made sense when it looked like there might be one dominant AGI effort but doesn’t in a world of many great AGI companies—we are moving to a normal capital structure where everyone has stock. This is not a sale, but a change of structure to something simpler.
phreeza · 38d ago
That is a very obvious thing for them to say though regardless of what they truly believe, because (a) it legitimizes removing the cap , making fundraising easier and (b) averts antitrust suspicions.
pryce · 38d ago
> "Our for-profit LLC, which has been under the nonprofit since 2019, will transition to a Public Benefit Corporation (PBC)–a purpose-driven company structure that has to consider the interests of both shareholders and the mission."
One remarkable advantage of being a "Public Benefit Corporation" is this it:
> prevent[s] shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation[1]
In my view, it is their own shareholders that the directors of OpenAI are insulating themselves against.
(b) is true but no so much (a). If investors thought it would be winner take all and they thought ClosedAI would win they'd invest in ClosedAI only and starve competitors of funding.
sebastiennight · 38d ago
Actually I'm thinking in a winner-takes-all universe, the right strategy would be to spread your bets on as many likely winners as possible.
That's literally the premise of venture capital. This is a scenario where we're assuming ALL our bets will go to zero, except one which will be worth trillions. In that case you should bet on everything.
It's only in the opposite scenario (where every bet pays off with varying ROI) that it makes sense to go all-in on whichever bet seems most promising.
AbstractH24 · 38d ago
Y that sounds just like a certain startup incubator’s perspective on things.
istjohn · 38d ago
I'm not surprised that they found a reason to uncap their profits, but I wouldn't try to infer too much from the justification they cooked up.
pdfernhout · 38d ago
As a deeper issue on "justification", here is something I wrote related to this in 2001 on the risks of non-profits engaging in self-dealing when they create artificial scarcity to enrich themselves:
"Consider this way of looking at the situation. A 501(c)3 non-profit creates a digital work which is potentially of great value to the public and of great value to others who would build on that product. They could put it on the internet at basically zero cost and let everyone have it effectively for free. Or instead, they could restrict access to that work to create an artificial scarcity by requiring people to pay for licenses before accessing the content or making derived works. If they do the latter and require money for access, the non-profit can perhaps create revenue to pay the employees of the non-profit. But since the staff probably participate in the decision making about such licensing (granted, under a board who may be all volunteer), isn't that latter choice still in a way really a form of "self-dealing" -- taking public property (the content) and using it for private gain? From that point of view, perhaps restricting access is not even legal?"
"Self-dealing might be clearer if the non-profit just got a grant, made the product, and then directly sold the work for a million dollars to Microsoft and put the money directly in the staff's pockets (who are also sometimes board members). Certainly if it was a piece of land being sold such a transaction might put people in jail. But because the content or software sales are small and generally to their mission's audience they are somehow deemed OK. The trademark-infringing non-profit-sheltered project I mention above is as I see it in large part just a way to convert some government supported PhD thesis work and ongoing R&D grants into ready cash for the developers. Such "spin-offs" are actually encouraged by most funders. And frankly if that group eventually sells their software to a movie company, say, for a million dollars, who will really bat an eyebrow or complain? (They already probably get most of their revenue from similar sales anyway -- but just one copy at a time.) But how is this really different from the self-dealing of just selling charitably-funded software directly to Microsoft and distributing a lump sum? Just because "art" is somehow involved, does this make everything all right? To be clear, I am not concerned that the developers get paid well for their work and based on technical accomplishments they probably deserve that (even if we do compete for funds in a way). What I am concerned about is the way that the proprietary process happens such that the public (including me) never gets full access to the results of the publicly-funded work (other than a few publications without substantial source)."
That said, charging to provide a service that costs money to supply (e.g. GPU compute) is not necessarily self-dealing. It is restricting the source code or using patents to create artificial scarcity around those services that could be seen that way.
SOLAR_FIELDS · 38d ago
Enlightening read, especially your last paragraph which touches on the nuance of the situation. It’s quite easy to end up on one side or the other when it comes to charity/nonprofits because the mission itself can be very motivating and galvanizing.
jasode · 38d ago
>"Self-dealing [...] convert some government supported PhD thesis work [...] the public (including me) never gets full access to the results of the publicly-funded work [...]
Your 2001 essay isn't a good parallel to OpenAI's situation.
OpenAI wasn't "publicly funded" i.e. with public donations or government grants.
The non-profit was started and privately funded by a small group of billionaires and other wealthy people (Elon Musk donates $44 million, Reid Hoffman, etc collectively pledging $1 billion of their own money).
They miscalculated in thinking their charity donations would be enough to recruit the PhD machine learning researchers and pay the high GPU costs to create the AI alternative to Google DeepMind, etc. Their 2015 assumptions about future AI development costs were massively underestimated and now they look like bad for trying to convert it to a for-profit enterprise. Instead of a big conversion to for-profit, they now will settle with keeping a subsidiary that's for-profit. Somewhat like other entities structured as a non-profit that owns for-profit subsidiaries such as Mozilla, Girl Scouts, Novo Nordisk, etc.
Obviously with hindsight... if they had to do it all over, they would just create the reverse structure of creating the OpenAI for-profit company as the "parent entity" that pledges to donate money to charities. E.g. Amazon Inc is the for-profit that donates to Housing Equity Fund for affordable housing.
CityOfThrowaway · 37d ago
All 501(c)(3) are funded in part by the public by way of uncollected tax revenues for economically valuable activity.
jasode · 37d ago
>uncollected tax revenues for economically valuable activity.
Taxes are on profits not revenue. The for-profit OpenAI LLC subsidiary created in 2019 would have been the entity that owes taxes but it has been losing money and never made any profits to tax.
Yesterday's news about switching from for-profit LLC to for-profit PBC still leaves a business entity that's liable for future taxes on profits.
philipodonnell · 37d ago
The contributors to the charity get a write off too
huijzer · 38d ago
The value investor Mohnish Pabrai once talked about his observation that most companies with a moat pretend they don’t have one and companies without pretend they do.
> Instead of our current complex capped-profit structure—which made sense when it looked like there might be one dominant AGI effort but doesn’t in a world of many great AGI companies—we are moving to a normal capital structure where everyone has stock. This is not a sale, but a change of structure to something simpler.
One remarkable advantage of being a "Public Benefit Corporation" is this it:
> prevent[s] shareholders from using a drop in stock value as evidence for dismissal or a lawsuit against the corporation[1]
In my view, it is their own shareholders that the directors of OpenAI are insulating themselves against.
[1] https://en.wikipedia.org/wiki/Benefit_corporation
That's literally the premise of venture capital. This is a scenario where we're assuming ALL our bets will go to zero, except one which will be worth trillions. In that case you should bet on everything.
It's only in the opposite scenario (where every bet pays off with varying ROI) that it makes sense to go all-in on whichever bet seems most promising.
https://pdfernhout.net/on-funding-digital-public-works.html#...
"Consider this way of looking at the situation. A 501(c)3 non-profit creates a digital work which is potentially of great value to the public and of great value to others who would build on that product. They could put it on the internet at basically zero cost and let everyone have it effectively for free. Or instead, they could restrict access to that work to create an artificial scarcity by requiring people to pay for licenses before accessing the content or making derived works. If they do the latter and require money for access, the non-profit can perhaps create revenue to pay the employees of the non-profit. But since the staff probably participate in the decision making about such licensing (granted, under a board who may be all volunteer), isn't that latter choice still in a way really a form of "self-dealing" -- taking public property (the content) and using it for private gain? From that point of view, perhaps restricting access is not even legal?"
"Self-dealing might be clearer if the non-profit just got a grant, made the product, and then directly sold the work for a million dollars to Microsoft and put the money directly in the staff's pockets (who are also sometimes board members). Certainly if it was a piece of land being sold such a transaction might put people in jail. But because the content or software sales are small and generally to their mission's audience they are somehow deemed OK. The trademark-infringing non-profit-sheltered project I mention above is as I see it in large part just a way to convert some government supported PhD thesis work and ongoing R&D grants into ready cash for the developers. Such "spin-offs" are actually encouraged by most funders. And frankly if that group eventually sells their software to a movie company, say, for a million dollars, who will really bat an eyebrow or complain? (They already probably get most of their revenue from similar sales anyway -- but just one copy at a time.) But how is this really different from the self-dealing of just selling charitably-funded software directly to Microsoft and distributing a lump sum? Just because "art" is somehow involved, does this make everything all right? To be clear, I am not concerned that the developers get paid well for their work and based on technical accomplishments they probably deserve that (even if we do compete for funds in a way). What I am concerned about is the way that the proprietary process happens such that the public (including me) never gets full access to the results of the publicly-funded work (other than a few publications without substantial source)."
That said, charging to provide a service that costs money to supply (e.g. GPU compute) is not necessarily self-dealing. It is restricting the source code or using patents to create artificial scarcity around those services that could be seen that way.
Your 2001 essay isn't a good parallel to OpenAI's situation.
OpenAI wasn't "publicly funded" i.e. with public donations or government grants.
The non-profit was started and privately funded by a small group of billionaires and other wealthy people (Elon Musk donates $44 million, Reid Hoffman, etc collectively pledging $1 billion of their own money).
They miscalculated in thinking their charity donations would be enough to recruit the PhD machine learning researchers and pay the high GPU costs to create the AI alternative to Google DeepMind, etc. Their 2015 assumptions about future AI development costs were massively underestimated and now they look like bad for trying to convert it to a for-profit enterprise. Instead of a big conversion to for-profit, they now will settle with keeping a subsidiary that's for-profit. Somewhat like other entities structured as a non-profit that owns for-profit subsidiaries such as Mozilla, Girl Scouts, Novo Nordisk, etc.
Obviously with hindsight... if they had to do it all over, they would just create the reverse structure of creating the OpenAI for-profit company as the "parent entity" that pledges to donate money to charities. E.g. Amazon Inc is the for-profit that donates to Housing Equity Fund for affordable housing.
Taxes are on profits not revenue. The for-profit OpenAI LLC subsidiary created in 2019 would have been the entity that owes taxes but it has been losing money and never made any profits to tax.
Yesterday's news about switching from for-profit LLC to for-profit PBC still leaves a business entity that's liable for future taxes on profits.