‘Is that legal?’ — Elon Musk chides OpenAI’s for-profit pivot after his $50M investment

OpenAI was originally formed as a nonprofit entity to ensure it was free to achieve its stated goal and then became a for-profit company back in 2019.

Billionaire Elon Musk has queried whether it's legal for OpenAI — the firm behind ChatGPT — to become a for-profit business after he invested approximately $50 million into it.

On May 16, Musk spoke with CNBC during Tesla’s annual shareholder meeting and claimed he “came up with the name” OpenAI, intending for the company to be an open-source alternative to DeepMind after Google purchased the company in 2014.

Musk likened OpenAI’s nonprofit to for-profit transition to a “save the Amazon” organization becoming a “lumber company” that logged and sold trees from the rainforest, adding:

“Is that legal? That doesn’t seem legal. In general, if it is legal to start a company as a non-profit and then take the IP and transfer it to a for-profit that then makes tons of money [...] shouldn't that be the default?”

OpenAI says it began as a nonprofit company so that it was “unconstrained by a need to generate financial return” and could focus on its goal of advancing “digital intelligence in the way that is most likely to benefit humanity as a whole.”

But in 2019, OpenAI announced it would create a new company called OpenAI LP, which it called a “hybrid of a for-profit and nonprofit,” or “capped-profit” company, which is supposedly still governed by the nonprofit entity.

OpenAI was created as an open source (which is why I named it “Open” AI), non-profit company to serve as a counterweight to Google, but now it has become a closed source, maximum-profit company effectively controlled by Microsoft.

Not what I intended at all.

— Elon Musk (@elonmusk) February 17, 2023

OpenAI claims this allowed it to attract more capital and scale faster, laying the groundwork for Microsoft’s multiyear, multibillion-dollar investment and other investments, such as the $100 million it is reportedly seeking for creating a new cryptocurrency called Worldcoin.

Related: OpenAI CEO Sam Altman testifies in ‘historic’ Senate hearing on AI safety

OpenAI might again be releasing an open-source AI model, which it hasn't done since it turned for-profit in 2019.

It seems likely the company's open-source AI model will not be as competitive as the paid version available to users for $20 per month, given this is a substantial source of revenue for the firm.

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