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OpenAI

Website:

openai.com/
Location:

San Francisco, CA
Type:

Artificial Intelligence (AI) Developer
Formation:

2015
CEO:

Sam Altman

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OpenAI is a for-profit artificial intelligence (AI) developer. It was originally founded as a nonprofit organization in 2015 by several technologists and entrepreneurs including Sam Altman, Greg Brockman, Ilya Sutskever, and Elon Musk. Formerly a nonprofit organization, in 2019 it reorganized with its main business operating as a “profit capped” organization that will divert all profits above a set multiplier of capital to a supervising nonprofit entity. 1 2 3

OpenAI is closely affiliated with Microsoft after the two companies partnered shortly after the announcement of the “capped profit” company. OpenAI “subsequently extended” its partnership with Microsoft, “expanding both Microsoft’s total investment as well as the scale and breadth of our commercial and supercomputing collaborations.” OpenAI’s partnership with Microsoft also included “a multibillion-dollar investment.” As of November 30, 2023, Microsoft owned 49 percent of OpenAI. 4 5

Sam Altman became OpenAI’s CEO in 2019, a position he held until he was fired by OpenAI’s board of directors on November 17, 2023. After criticism from inside and outside the OpenAI/Microsoft network, on November 22, OpenAI announced that it had come to an agreement that Altman would return to the company as its CEO. OpenAI also announced that most of its board of directors had stepped down. 6

OpenAI developed an AI tool for ChatGPT, an artificial intelligence chatbot, that would be fed with examples of violence, hate speech, and sexual abuse, to learn to detect that type of language and filter it out of the chatbot. TIME magazine reported that to achieve this, in November 2021, OpenAI sent “thousands of snippets of text to an outsourcing firm in Kenya.” 7 According to the report, some of the content sent to the outsourcing firm contained descriptions of situations including torture, self-harm, murder, suicide, child sexual abuse, bestiality, and incest. Sama, the outsourcing firm, is a San Francisco-based company that employs workers from Uganda, Kenya, and India to label data for clients like Google, Microsoft, and Meta. 8

Background

OpenAI is a for-profit artificial intelligence (AI) developer based in San Francisco, California. OpenAI was founded as a nonprofit organization in 2015 by several technologists and entrepreneurs including Sam Altman, Greg Brockman, Ilya Sutskever, and Elon Musk. OpenAI received initial funding from Altman, Musk, Brockman, Reid Hoffman, Jessica Livingston, Peter Thiel, Amazon Web Services (AWS), Infosys, and YC Research. The organization transitioned into a “profit capped” 9 for-profit organization in 2019, although it is still governed by the board of directors of the OpenAI nonprofit, and commonly referred to as OpenAI. 10 11

OpenAI focuses on creating and developing AI programs such as ChatGPT, an AI chatbot that uses technology called neural networks to automate text-based tasks including writing essays, books, and poetry, and responding to users’ questions like a human. 12

ChatGPT was initially released on November 30, 2022, but has since been integrated with DALL-E 3, an AI image model that also powers Microsoft’s Bing Image Creator, which lets users create images via AI by giving written prompts. ChatGPT recorded having 1 million users five days after its release, and as of July 1, 2023, had more than 100 million users. 13

OpenAI built an artificial intelligence tool that could fabricate false news stories in 2019. The organization claimed that the AI was so good at writing fake news stories it decided to not release it to the public. The organization released a version of that tool as GPT-2 later in 2019. Another chatbot, GPT-3, was released in 2020, and GPT-4 was released in March 2023 as a paid subscription. 14 15

OpenAI Global LLC

OpenAI changed its operating structure in March 2019 when the organization created its own “profit capped” subsidiary OpenAI Global LLC. 16 OpenAI Global LLC took over the day-to-day operations, and research and development of artificial intelligence, from the nonprofit arm of OpenAI, which was maintained. The nonprofit arm’s board of directors exists as “the overall governing body for all OpenAI activities.” Although the “for-profit subsidiary is permitted to make and distribute profit,” it also must follow the OpenAI nonprofit’s mission. OpenAI Global LLC is now commonly referred to as OpenAI. 17

OpenAI Global LLC is also affiliated with Microsoft after the two companies entered into a partnership shortly after the announcement of the “capped profit” company. OpenAI “subsequently extended” its partnership with Microsoft, “expanding both Microsoft’s total investment as well as the scale and breadth of our commercial and supercomputing collaborations.” OpenAI’s partnership with Microsoft also includes “a multibillion-dollar investment.” As of November 30, 2023, Microsoft owned 49 percent of OpenAI. 18 19

Relationship with Elon Musk

OpenAI co-founder Elon Musk left the organization in 2018. In a blog post responding to Musk leaving, OpenAI stated the reason was to “eliminate potential future conflict.” Musk also added in a statement on Twitter in 2019 that he had also left OpenAI because he “didn’t agree with some of what [the] OpenAI team wanted to do.” 20

Musk also stated in 2020 that he believed OpenAI “should be more open,” after an investigation into the organization by MIT Technology Review, which claimed that OpenAI was being secretive and was going against its promise of transparency. Musk also stated that he blocked OpenAI’s access to Twitter’s database after his takeover of the company, which OpenAI had used for training its software, stating that he needs “to understand more about governance structure & revenue plans going forward,” adding that “OpenAI was started as open-source & non-profit. Neither are still true.” 21

Sam Altman

Firing and Rehiring

Sam Altman is a co-founder and the CEO of OpenAI. Altman became OpenAI’s CEO in 2019, 22 a position he held until he was fired by OpenAI’s board of directors on November 17, 2023. On that day, OpenAI’s board of directors announced that Altman had been fired and removed from his position on the board of directors. Mira Murati, the company’s chief technology officer, was to serve as interim CEO until a permanent candidate appeared. 23

According to the blog post, Altman’s firing followed a “deliberative review process” by the board of directors, which concluded that Altman “was not consistently candid in his communications with the board,” which in turn led to the board stating it “no longer has confidence in his [Altman’s] ability to continue leading OpenAI.” The board of directors at the time included Quora CEO Adam D’Angelo, Georgetown Center for Security and Emerging Technology’s Helen Toner, technology entrepreneur Tasha McCauley, and OpenAI chief scientist Ilya Sutskever. 24

Soon after the announcement, Altman posted on X that he enjoyed his time at OpenAI and added he “will have more to say about what’s next later.” OpenAI co-founder and president Greg Brockman announced on the evening of the 17th that he was leaving OpenAI based on the news of Altman being fired. OpenAI’s director of research, head of an AI risk team, and a senior researcher also announced they were leaving OpenAI shortly after Brockman’s resignation. 25

After those resignations, Brockman posted a statement on X, sharing his account of what happened. According to Brockman, Altman was fired over Google Meet by the entire board of directors excluding Brockman, who did not attend the meeting. Brockman claims that he was later told he was being removed from the board, but would retain his other roles in the company. He also states that the majority of OpenAI management did not know Altman was fired until that day. 26

According to a report by Forbes on November 18, investors in OpenAI’s for-profit arm attempted to convince OpenAI’s board of directors to re-hire Altman. Venture capital firms that held positions in the for-profit subsidiary of OpenAI discussed partnering with Microsoft and senior OpenAI employees to restore Altman to his position. 27

According to the report, investors would attempt to persuade OpenAI’s management, including the board of directors, that Altman’s firing was a mistake and their situation untenable. The report claimed this would be achieved by a “a combination of mass revolt by senior researchers, withheld cloud computing credits from Microsoft, and a potential lawsuit from investors.” 28

Shortly after the Forbes report, less than 24 hours after Altman was fired, the Verge reported that OpenAI’s board of directors contacted Altman to work out his return to the company. An agreement reportedly made between the two parties would lead to Altman and Brockman returning to the company, and the board of directors resigning, although no deal was finalized that evening. 29

Altman returned to negotiations on November 19, and according to a report by The Information, Microsoft CEO Satya Nadella was personally involved in the discussions to re-hire Altman, and interim CEO Murato also supported him. Later that day OpenAI announced it would be hiring former Twitch executive Emmett Shear as interim CEO. 30

Nadella announced in the morning on Monday November 20 that Altman and Brockman were joining Microsoft. According to Nadella’s announcement, both Altman and Brockman were joining Microsoft, which owned 49 percent of OpenAI and has pledged investments totaling $13 billion to the company, to “lead a new advanced AI research team.” 31 32 33

Mashable reported that after this announcement, hundreds of OpenAI employees threatened to quit working at the company to join Altman and Brockman at Microsoft. Ilya Sutskever, the OpenAI co-founder and chief scientist who allegedly initiated the firing of Altman, stated on Twitter that he regretted his “participation in the board’s actions,” and that he “will do everything I can to reunite the company.” 34

A petition calling for OpenAI’s board of directors to step down was circulated, receiving hundreds of signatures from OpenAI employees, including Sutskever. 35

Sometime overnight on November 21st or 22nd, OpenAI announced via X that it had come to an agreement that Altman would return to the company as its CEO. OpenAI also announced that most of its board of directors had stepped down. 36

The new board of directors for OpenAI included former Clinton administration Treasury Secretary Larry Summers, former Salesforce co-CEO Bret Taylor, and Quora CEO Adam D’Angelo. 37

According to a report by the Washington Post, former OpenAI director and U.S. Representative Will Hurd (R-TX) stated that OpenAI “tried to have the best of both worlds, the nonprofit structure and the for-profit structure, and ultimately, I think that was some of the conflict.” He added that although the company had “innovations in governance structure,” it “maybe should have been focused on innovations in the products.” 38

Other Altman Controversies

According to a report released by Business Insider on December 10, 2023, Altman was allegedly a “skilled corporate schemer who manipulated people and perceptions within OpenAI to maintain his own standing and that his tactics rubbed more than a few people at the organization the wrong way.” 39

According to the report, Altman did not have a good relationship with board member Helen Toner, a researcher at a Georgetown University think tank. Toner published a paper praising one of OpenAI’s rivals, Anthropic, in October 2023. The paper praised Anthropic for delaying the release of its new chatbot, Claude, and criticized OpenAI due to its “frantic corner-cutting” release of ChatGPT. 40

Business Insider reported that Altman confronted Toner about her paper, claiming it “could cause problems” with the Federal Trade Commission, which according to a New York Times report, was already investigating OpenAI. 41

Although Toner offered to write an apology to the board of directors, Altman emailed the board himself. Altman also called members of the board and told them Tasha McCauley, another board member and scientist at the RAND Corporation, wanted Toner removed from the board. When asked by the board about the incident, McCauley stated it was “absolutely false,” the New York Times reported. 42

Ilya Sutskever was also named as having a strained relationship with Altman. According to Business Insider, Sutskever was seen as a “visionary” who harnessed an academic approach in the company, which conflicted with Altman’s approach. Sutskever wanted to take a more cautious approach to AI, while he worried Altman wanted to progress too quickly. Sutskever, who was OpenAI’s chief scientist and board member, was also frustrated with being “pushed out of decisions” regarding ChatGPT development. 43

Altman and Sutskever’s relationship became more volatile in October 2023 when Altman promoted someone to a level equivalent to Sutskever, which the chief scientist saw as an insult and told other board members he might resign from his position because of it. Board members reportedly saw the statement “as a demand that they choose between Sutskever or Altman,” according to the New York Times 44 45

According to a report by the New Yorker, which referenced sources close to the boardroom, Altman was not popular amongst some of the board of directors. Some board members found Altman to be manipulative and conniving, according to the report, which added members of the board “felt Sam [Altman] had lied.” The report also stated that the board intended to keep Altman’s firing a surprise due to a fear that “he’d do anything he could to undermine the board.” 46 47

According to Business Insider, Sutskever said one explanation he had received from the board of directors regarding Altman’s dismissal claimed Altman had given two different opinions to two different board members regarding a member of the company. Sutskever also said that another explanation could be that Altman allegedly gave the same project to two different people at the company. 48

According to a December 8 report by the Washington Post, citing two anonymous sources “familiar with the board’s thinking,” a small number of senior company leaders, including “key figures and people who manage large teams” at OpenAI, approached the board of directors with complaints about Altman. 49

The employees alleged that Altman had been psychologically abusive, caused chaos and delays within the company, and pitted employees against each other. The report also noted that the board of directors reviewed complaints by other employees, one of whom alleged that Altman had become hostile after they shared feedback with him. 50

Altman stated on November 29, 2023 that it was clear “that there were real misunderstandings between [Altman] and members of the board,” although he did not go into detail about the situation. 51

Investigations by Regulators

The firing and rehiring of Sam Altman highlighted the strong affiliation between OpenAI and Microsoft, which led the U.K. competition regulator, the Competition and Markets Authority (CMA), to announce an investigation into the companies’ relationship. 52 The investigation is an examination of whether Microsoft and OpenAI essentially merged. 53

Microsoft owns 49 percent of OpenAI’s for-profit arm, which is governed by the nonprofit arm’s board of directors and has pledged to invest around $13 billion to the company. Microsoft also supplies OpenAI with all its cloud-computing services and has non-voting observer status on OpenAI’s board, meaning Microsoft can attend board meetings and have access to confidential information but cannot vote on decisions including electing or choosing new directors. 54

If the CMA concludes that the companies merged, and that the merger led to “substantial lessening of competition (SLC),” it could result in a forced change of governance for OpenAI. The CMA will also investigate if Microsoft has been limiting or refusing to supply cloud computing services to OpenAI competitors and, if this is the case, could decide that it harms competition and leads to SLC. 55

The United States Federal Trade Commission (FTC) is also reportedly looking into Microsoft’s investment and whether it breaks anti-trust laws, although there was no formal investigation and the inquiries were preliminary as of December 2023. 56

The FTC is also reportedly investigating OpenAI for different reasons, including whether ChatGPT has harmed consumers via data collection and misinformation. 57

Controversies

Sama Outsourcing

According to an investigation by TIME, OpenAI outsourced work to Kenyan laborers in an attempt to make ChatGPT less offensive. OpenAI developed an artificial intelligence tool for ChatGPT that would be fed with examples of violence, hate speech, and sexual abuse, to learn to detect that type of language and filter it out of the chatbot. To achieve this, in November 2021, OpenAI sent “thousands of snippets of text to an outsourcing firm in Kenya.” 58

According to the TIME report, much of the text sent to the outsourcing firm contained descriptions of situations including torture, self-harm, murder, suicide, child sexual abuse, bestiality, and incest. Sama, the outsourcing firm, is “a San Francisco-based company that employs workers from Kenya, Uganda, and India to label data for clients like Google, Meta, and Microsoft.” 59

TIME reported that Sama paid its Kenyan workers a take-home wage between $1.32 and $2 per hour, depending on the performance and seniority of the worker. One worker stated that one of the text examples he had to review “was torture” for his mind due to its disturbing nature. The worker explained that the nature of the work took a heavy toll on his mental health each week. 60

Sama canceled its work with OpenAI in February 2022 due to the traumatic nature of the text examples. 61

According to the TIME report, Sama signed three contracts with OpenAI worth around $200,000 in total. Approximately 36 workers were split into three teams and each team would work on a subject. The report stated that workers were expected, within a nine-hour shift, to read and label between 150 and 250 passages of text. Said passages of text could range from between one hundred words to over one thousand. 62

Four workers who spoke to TIME stated that they were mentally scarred by the work and, although it was possible to meet with a “wellness” counselor, all four employees noted the sessions were rare and unhelpful. 63

According to the contract between OpenAI and Sama, “OpenAI would pay an hourly rate of $12.50 an hour to Sama for the work,” and the workers themselves would take home between $1.32 and $2 per hour. TIME reports that the most junior data labelers, which made up the majority of workers on the teams, were paid 21,000 Kenyan shillings ($170) per month, plus monthly bonuses of around $70 due to the explicit material they were working on. 64

A Sama spokesperson said in a statement that workers could earn between $1.46 and $3.74 per hour after taxes, adding that “the $12.50 rate for the project covers all costs, like infrastructure expenses, and salary and benefits for the associates and their fully-dedicated quality assurance analysts and team leaders.” The Sama spokesperson disputed the level of work, stating that workers would label 70 passages per shift, not 150-250. 65

An OpenAI spokesperson said in a statement that it did not issue any targets regarding productivity to Sama and that the outsourcing firm was responsible for the mental health resources and payment to its workers. The statement added that OpenAI believed the workers had access to one-on-one counseling, could opt out of work with no penalty, and “exposure to explicit content would have a limit.” 66

Sama also began separate work for an OpenAI project in February 2022 prior to parting ways with the AI company. According to the TIME report, Sama was asked to collect sexual and violent images, some illegal according to U.S. law, to deliver to OpenAI, although the work was unrelated to ChatGPT. 67

According to a billing statement reviewed by TIME, Sama provided 1,400 images to OpenAI as part of a sample batch. Some images were categorized with OpenAI’s internal labeling including “C4,” which depicts child sexual abuse; “C3,” which depicts situations including bestiality, rape, and sexual slavery; and “V3,” which depicts graphic detail of death, violence, and physical injury. 68

An OpenAI spokesperson said in a statement that collecting these images was “a necessary step” in making AI tools safer but did not elaborate on why OpenAI wanted said images. 69

Within weeks of providing these images to OpenAI, Sama canceled its work for the company, eight months earlier than the contracts stated. Sama, in a statement, claimed it did not agree to collect images of illegal content, and it was only after work had started that OpenAI sent Sama “additional instructions” referring to “some illegal categories.” 70

Sama also stated that its “East Africa team raised concerns to [Sama] executives right away,” and that it had “immediately ended the image classification pilot and gave notice that we would cancel all remaining [projects] with OpenAI.” 71

OpenAI confirmed it had received 1,400 images from Sama. In a statement, OpenAI noted that the images received “​​included, but were not limited to, C4, C3, C2, V3, V2, and V1 images.” In a follow-up statement, OpenAI stated that it “never intended for any content in the C4 category to be collected” as it “is not needed as an input to our pretraining filters,” adding that “there had been a miscommunication” between the two companies. 72

OpenAI and German media conglomerate Axel Springer signed a licensing agreement in late December 2023, which allowed OpenAI to integrate articles from Axel Springer-owned news outlets, like Politico and Business Insider, in its products, including ChatGPT. According to a report by WIRED, journalists whose work will be shared due to the agreement were not consulted. 73

PEN Guild, the union that represents approximately 280 employees for two Axel Springer outlets, stated that it was not informed “about the decision to have robots summarize” journalists’ work. 74

The New York Times filed a lawsuit against Microsoft and OpenAI on December 27, 2023. 75 76 The Times lawsuit claims that the technology powering ChatGPT “can generate output that recites Times content verbatim, closely summarizes it, and mimics its expressive style.” It also claims the AI tools referenced “damage” its “relationship with its readers and deprive The Times of subscription, licensing, advertising, and affiliate revenue,” while OpenAI and Microsoft have made large profits. 77 78

The lawsuit “seeks to hold them responsible for the billions of dollars in statutory and actual damages that they owe” for alleged copyright infringement. 79 80

Another lawsuit regarding OpenAI’s AI training was filed by author and Hollywood Reporter editor Julian Sancton in November 2023. The lawsuit claimed that OpenAI and Microsoft had copied thousands of nonfiction books, without permission, to train its AI models. “While OpenAI and Microsoft refuse to pay nonfiction authors, their AI platform is worth a fortune,” Sancton’s attorney said in a statement, adding that the “basis of OpenAI is nothing less than the rampant theft of copyrighted works.” 81

A trade group for U.S. authors also sued OpenAI in September 2023, on behalf of writers including John Grisham, Jonathan Franzen, George Saunders, Jodi Picoult, and Game of Thrones novelist George R.R. Martin. 82

Nonprofit Funding

OpenAI received multiple millions of dollars from the Open Philanthropy Project (also called Open Phil), a left-leaning grant maker founded in 2016 by Cari Tuna and Dustin Moskovitz. The Open Philanthropy Project granted OpenAI a total of $30 million, $10 million a year for three years, in March 2017. 83

According to a statement by the Open Philanthropy Project, the grant initiated “a partnership between the Open Philanthropy Project and OpenAI.” 84

According to the Open Philanthropy Project’s statement, Dario Amodei and Paul Christiano, two OpenAI researchers, are also technical advisors to the Open Philanthropy Project and live in the same house as Holden Karnofsky, the Open Philanthropy Project’s executive director, who is also engaged to Dario Amodei’s sister. 85

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