OpenAI is ending October with a significant restructuring, moving to a for-profit model and striking a new deal with Microsoft. This transformation has introduced an entirely new level of pressure to achieve artificial general intelligence (AGI). The generally accepted definition of AGI is an artificial intelligence system that equals or surpasses human cognitive ability across multiple domains. However, despite becoming a goalpost for the entire AI industry, experts disagree on what AGI actually looks like in practice and whether—or when—it may be possible. This ambiguity creates a peculiar situation where an increasingly huge swath of the economy is devoted to finding the entirely hypothetical finish line of this expensive race.
The economic stakes are staggering. Billions of dollars are being poured into AGI development, with cloud computing and other resources being consumed at unprecedented rates. This pursuit is reshaping entire industries before the technology even exists. For OpenAI specifically, the pressure was immense—the company stood to lose as much as $10 billion if its for-profit conversion didn't happen by New Year's Eve, making Microsoft's approval essential.
This leverage stems from the OpenAI-Microsoft partnership originally struck in 2019, which included a crucial "AGI clause" that has now become central to their evolving relationship. Under this clause, Microsoft holds the rights to use OpenAI's technology, but only until OpenAI achieves AGI. The arrangement created conflicting incentives from the start: OpenAI had an obvious motivation to announce AGI achievement as soon as possible to stifle competition and regain control of its own intellectual property, while Microsoft had an equally obvious incentive to add friction to that process, even as it supported AGI as an overall goal.
Given this dynamic, Microsoft appears to have won several important concessions in the new deal. Most notably, "once AGI is declared by OpenAI, that declaration will now be verified by an independent expert panel"—meaning OpenAI can no longer unilaterally declare victory in the AGI race. This addition of third-party verification represents a strategic win for Microsoft, effectively inserting a crucial checkpoint into the process and positioning itself as both partner and competitor in this high-stakes technological pursuit.
The implications extend far beyond these two companies. The future of AI development now hinges on this complex power dynamic, raising critical questions about who decides when AGI has been achieved and what happens to Microsoft's IP rights when that threshold is crossed. After Tuesday's news, the AGI race has fundamentally changed, with Microsoft emerging as a new entrant with significant control over the finish line itself.
