OpenAI is the world's hottest startup. His launch of ChatGPT in November 2022 not only set the stage for a generative AI explosion, but also propelled Microsoft's (MSFT) push into the space through a multi-year, multi-billion dollar investment, leading tech giant That's a profit of about $49. % of the shares of the company's commercial subsidiaries.
According to Bloomberg, the company is currently valued at $86 billion. And with its latest product, the generative AI video platform Sora, making waves, CEO Sam Altman and the company are better than ever.
But OpenAI's success has also left it with a huge goal. The company faces a number of headwinds, from lawsuits and government investigations to increased competition from established players like Google. And some of them may pose an existential threat to OpenAI as currently configured.
Litigation regarding litigation
OpenAI's recent troubles come from close to home: co-founder Elon Musk. Last week, Tesla's CEO filed a lawsuit against the generative AI company, alleging breach of contract. Musk alleges in his lawsuit that OpenAI violates its founding agreement by using technology to grow the commercial sector rather than for the benefit of humanity.
Musk wants OpenAI to make all of its technology public so that Microsoft, which uses OpenAI's models in various AI Copilot products, cannot profit from it. After helping found OpenAI in 2015, Musk left in 2018, citing disagreements over the company's future, and founded his own AI company called x.AI last year.
The New York Times is suing OpenAI as well as Microsoft, alleging that both companies profit from the use of Times' copyrighted material. According to the Times, OpenAI uses that content without permission to train models, which benefits the company and Microsoft. The Times wants OpenAI to destroy all content of models trained using its materials.
The newspaper isn't the only media company looking to take on OpenAI. The Intercept, Raw Story, and AlterNet are also suing the company for using their data to train models. The groups are seeking damages and are asking OpenAI to delete the training data, which has “author, title, copyright, and terms of use information removed.”
Removing training data from large language models in OpenAI can impact overall performance.
Regulators are patrolling
OpenAI also faces regulatory scrutiny in the United States and abroad. According to the Wall Street Journal, the Securities and Exchange Commission is investigating whether OpenAI misled investors. The investigation follows the OpenAI board's decision in November to fire Altman for not being consistently candid with members. OpenAI rehired Altman less than two weeks after he was fired.
The U.S. Federal Trade Commission is examining the potential impact of major cloud providers' large investments in generative AI companies, not just OpenAI's dealings with its competitors, but also OpenAI's dealings with Microsoft. transactions are also being investigated. The FTC is investigating Amazon and Google's investments in OpenAI competitor Anthropic.
Overseas, the UK's Competition and Markets Authority is seeking comments from the public on whether the OpenAI and Microsoft deal should be considered a related merger situation and how it will affect competition in the market.
Meanwhile, the European Commission is investigating whether the relationship between Microsoft and OpenAI can be reviewed under EU merger regulations.
Competition is fierce
OpenAI is also keeping an eye on increasing competition from some of its biggest rivals. On Monday, Anthropic announced the Claude 3 family of large-scale language models. According to the company, its largest model, the Claude 3 Opus, is compatible with OpenAI's GPT-4.
Google (GOOG, GOOGL) is also aiming to compete with OpenAI with its Gemini family of models. However, the company failed to roll out his Gemini image generator and pulled it from the market until an update was made.
Apple (AAPL) is also looking to enter the generative AI market, with Tim Cook saying the company is investing heavily in the technology. And while Apple is unlikely to announce an enterprise-generated AI model that directly rivals OpenAI's GPT offering, it does release on-device generated AI capabilities that will distract consumers from ChatGPT and its ilk. There is a possibility.
However, OpenAI's challenges do not necessarily indicate that the company is in immediate danger. Litigation and regulatory actions can take years to make it through the courts, if they even get that far. And with Microsoft in its corner, the company has a huge war chest to fund research into bigger and more powerful AI models. However, the company is currently sitting at the top of the AI mountain and will no doubt face further challenges in the future.
daniel howley I'm the technology editor at Yahoo Finance. He has been covering the technology industry since his 2011. You can follow him on Twitter. @Daniel Howley.
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