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In 2019, OpenAI got a billion-dollar investment from Microsoft. Back when a billion was a lot of money. Since then, OpenAI’s hosted its servers, rooms full of GPUs, with Microsoft on their Azure cloud. With a few exceptions.
The OpenAI hosting deal has been one of the big numbers in Microsoft’s quarterly earnings to say how great they’re doing with AI.
On Monday, the two companies announced they’d completely revised this agreement. Microsoft still has rights to all OpenAI’s models until 2032. The revenue share arrangements get shuffled a bit. Microsoft stays a major shareholder in OpenAI. [OpenAI; Microsoft]
But the big news is:
Microsoft remains OpenAI’s primary cloud partner, and OpenAI products will ship first on Azure, unless Microsoft cannot and chooses not to support the necessary capabilities.
Now that’s a sentence full of questions. Why would Microsoft even accept this? They’re freeing OpenAI from the old deal and they’re not really getting anything back for that.
The problem here for Microsoft is that hosting is where Microsoft’s been failing. It hasn’t been able to host all the compute OpenAI needs.
And OpenAI is a significant Microsoft investment. They sort of need OpenAI to do well.
There’s a series of blog posts from Axel Rietschin, who used to be an engineer at Azure. All big organisations are a mess, it’s normal. But Rietschin says Azure’s specific mess — infrastructure that literally just didn’t work — broke the deal with OpenAI: [Medium]
The org had a hard commitment to deliver the already long-delayed OpenAI bare-metal SKUs that had been promised for years. This work started around May 2024 with a target of Spring 2025 and was led by a Principal engineer who had evidently never tackled a task of that scale.
Fast-forward to March 10, 2025: OpenAI signed an $11.9 billion compute deal with CoreWeave for model training and services.
OpenAI then did even bigger deals with Coreweave and with Oracle. Microsoft had “right of first refusal” — but they weren’t delivering.
On Microsoft’s earnings call yesterday, an analyst asked about this new deal. Satya Nadella, the CEO, assures us it’s all great, they’ve got the software rights and the hosting deal. It’s fine. Nothing beyond the original press release. [transcript and audio]
Microsoft didn’t even file an SEC 8-K form about a material change in circumstances. Apparently the new deal doesn’t make enough of a difference.
What happens next? Amazon gets to host some OpenAI, as part of the funding deal they arranged in February. OpenAI can host anywhere if Microsoft can’t get it together, and Microsoft can’t, really. Nadella admitted in November that Microsoft’s got Nvidia rigs piled in warehouses waiting for power.
OpenAI’s removed one bottleneck, Azure. But it has other bottlenecks — data centres, power for the data centres, and money.
Freedom in hosting looks a bit better for the OpenAI IPO — though it doesn’t do anything about OpenAI’s utterly wrecked financials.
But that’s all tomorrow’s problem. Today’s problem is totally solved! A bit.
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