Microsoft and OpenAI restructure partnership with new governance framework

Microsoft and OpenAI announced on October 28, 2025, a comprehensive restructuring of their partnership agreement that modifies ownership structures, extends intellectual property rights, and establishes new procedures for declaring artificial general intelligence. The new definitive agreement addresses technical, commercial, and governance elements that have defined one of the technology industry's most significant collaborations since 2019.

Following the recapitalization process, Microsoft holds an investment in OpenAI Group PBC valued at approximately $135 billion. This represents roughly 27 percent ownership on an as-converted diluted basis, inclusive of all owners including employees, investors, and the OpenAI Foundation. Prior to the recent funding rounds, Microsoft held a 32.5 percent stake on an as-converted basis in the OpenAI for-profit entity.

The restructured agreement maintains several core provisions while introducing substantive modifications. OpenAI remains Microsoft's frontier model partner, and Microsoft continues to have exclusive IP rights and Azure API exclusivity until artificial general intelligence is achieved. These fundamental elements persist from previous arrangements between the companies.

Technical and commercial modifications

The revised framework introduces multiple technical specifications affecting model access and deployment rights. Microsoft's intellectual property rights for both models and products now extend through 2032, a significant temporal expansion that includes models developed after AGI is declared, subject to appropriate safety guardrails.

Research IP rights, defined as confidential methods used in the development of models and systems, will remain with Microsoft until either an independent expert panel verifies AGI or through 2030, whichever occurs first. This category encompasses models intended for internal deployment or research purposes exclusively.

The agreement specifies that research IP does not include model architecture, model weights, inference code, finetuning code, and any intellectual property related to data center hardware and software. Microsoft retains these non-research IP rights under separate provisions.

Consumer hardware developed by OpenAI now falls outside Microsoft's IP rights framework. This exclusion represents a departure from previous arrangements and suggests anticipated product development in physical devices.

Joint product development capabilities have expanded under the new terms. OpenAI can now jointly develop some products with third parties, with API products developed through such collaborations remaining exclusive to Azure. Non-API products may be served on any cloud provider, introducing competitive dynamics to infrastructure deployment decisions.

Microsoft gains independent authority to pursue AGI development alone or in partnership with third parties. If Microsoft uses OpenAI's intellectual property to develop AGI prior to its formal declaration, the models will be subject to compute thresholds significantly larger than the size of systems used to train leading models currently operational.

AGI verification procedures

The restructured agreement establishes an independent expert panel to verify any AGI declaration made by OpenAI. This represents a substantive governance change from previous arrangements where OpenAI maintained unilateral authority over AGI determination.

The verification mechanism carries significant financial and operational implications. The revenue share agreement between the companies remains in effect until the expert panel verifies AGI, though payments will be made over an extended period. This temporal adjustment affects cash flow structures for both organizations while maintaining economic linkages.

The introduction of third-party verification addresses technical and philosophical questions that have persisted throughout the partnership. Defining AGI remains contentious among researchers, with no consensus on measurement criteria or capability thresholds. The expert panel structure delegates this determination to specialists rather than leaving it to commercial judgment by either party.

Infrastructure and commercial arrangements

OpenAI has contracted to purchase an incremental $250 billion of Azure services under the new agreement. This massive commitment represents one of the largest cloud services contracts in technology history and guarantees substantial revenue for Microsoft's cloud infrastructure business over an extended timeframe.

Microsoft no longer holds a right of first refusal to be OpenAI's compute provider. This modification introduces competitive dynamics to infrastructure decisions previously governed by preferential arrangements. OpenAI can now evaluate alternative providers based on technical capabilities, pricing, and operational considerations without contractual constraints favoring Microsoft.

Government customer provisions have expanded under the restructured agreement. OpenAI can now provide API access to United States government national security customers regardless of the cloud provider hosting the services. This addresses deployment scenarios where security requirements or policy considerations necessitate specific infrastructure configurations beyond Microsoft's Azure platform.

The agreement permits OpenAI to release open weight models that meet requisite capability criteria. This represents a shift in deployment strategies and suggests potential changes to OpenAI's approach to model distribution and access methodologies.

Industry context and competitive implications

The partnership restructuring occurs against a backdrop of intense competition in AI-powered commerce, where both companies are developing tools that could reshape online shopping experiences. Microsoft launched its Copilot Merchant Program in April 2025, while evidence emerged suggesting OpenAI was preparing similar commerce initiatives.

The companies face complex dynamics around search capabilities and data access. Research published in August 2025 revealed that ChatGPT's paid versions use Google's search infrastructure despite official documentation claiming Bing partnership, creating questions about transparency in AI partnerships and technical implementation details.

Microsoft's broader infrastructure strategy has undergone significant transitions. The company ended its Bing Search APIs on August 11, 2025, redirecting customers toward Azure AI Agents with "Grounding with Bing Search" capabilities. These changes reflect broader shifts in how Microsoft positions its search technology within AI product frameworks.

The partnership operates within an advertising and marketing landscape where AI capabilities are rapidly expanding. OpenAI introduced Instant Checkout capabilities within ChatGPT on September 29, 2025, enabling direct purchases through the Agentic Commerce Protocol developed with Stripe. This marked OpenAI's entry into transaction-enabled commerce, affecting over 700 million weekly ChatGPT users globally.

Both companies continue to navigate regulatory scrutiny and operational challenges. The original $1 billion Microsoft investment in OpenAI occurred in July 2019, establishing the foundation for subsequent expansions of technical collaboration and commercial integration.

Marketing and advertising implications

The restructured partnership affects digital marketing infrastructure in several dimensions. The extended IP rights through 2032 provide stability for advertisers and marketing technology platforms building on Microsoft and OpenAI capabilities. This temporal certainty enables longer-term strategic planning for businesses integrating these technologies into customer acquisition and retention systems.

The independent AGI verification panel introduces uncertainty into planning horizons for businesses dependent on current partnership structures. Marketing technology vendors must account for potential disruptions when AGI verification triggers contractual changes, including modifications to revenue sharing arrangements and IP access rights.

The $250 billion Azure services commitment ensures continued infrastructure investment supporting AI-powered marketing tools. Scale and reliability of cloud computing resources directly affect performance of advertising systems, personalization engines, and analytics platforms that increasingly rely on large language models and other AI capabilities.

Microsoft's ability to independently pursue AGI creates potential competitive dynamics that could fragment the current unified approach to frontier models. Marketing technology providers may need to evaluate multiple AI providers rather than relying on singular partnerships, increasing integration complexity while potentially expanding capabilities through access to diverse systems.

The expansion of joint product development opportunities with third parties suggests increased ecosystem diversity. Marketing platforms may gain access to specialized AI capabilities developed through OpenAI partnerships with companies possessing domain expertise in specific verticals or functional areas beyond Microsoft's core competencies.

Government customer provisions enabling API access regardless of cloud provider address specific deployment scenarios but have limited immediate impact on commercial marketing applications. However, they establish precedent for flexibility in infrastructure arrangements that could extend to commercial contexts over time.

The permission for OpenAI to release open weight models meeting capability criteria could significantly affect the AI marketing technology landscape. Open models enable local deployment, customization, and integration patterns impossible with API-only access. This shift could reduce dependence on cloud infrastructure for certain marketing applications while maintaining relationships with frontier model providers for cutting-edge capabilities.

Financial and operational dimensions

The approximately $135 billion valuation of Microsoft's investment represents a significant increase from earlier partnership phases. This valuation reflects OpenAI's position as a leading AI research organization and the commercial success of products like ChatGPT and enterprise API services.

The dilution from 32.5 percent to 27 percent ownership on an as-converted basis reflects the impact of recent funding rounds that brought additional investors into OpenAI's structure. Despite this dilution, Microsoft maintains substantial economic interest in OpenAI's success while gaining expanded operational flexibility through the modified terms.

The revenue share agreement's continuation until AGI verification preserves financial linkages between the companies even as operational independence increases. The extended payment timeline addresses cash flow considerations while maintaining economic alignment through the transition to public benefit corporation structure.

The modified terms balance competing priorities inherent in partnerships between established technology companies and emerging research organizations. Microsoft gains extended IP rights and AGI development flexibility while OpenAI secures infrastructure commitments, expanded partnering options, and greater autonomy in model release decisions.

The agreement's structure reflects maturation of the partnership from its origins as an investment in a research organization to a complex commercial relationship between two major technology entities with partially overlapping and partially divergent strategic priorities.

Timeline

• July 2019: Microsoft invests $1 billion in OpenAI, establishing the initial partnership framework
• February 7, 2025: OpenAI CEO Sam Altman addresses AI energy consumption concerns at Berlin panel, announcing BIFOLD research partnership
• April 21, 2025: Microsoft and OpenAI develop competing retail AI commerce solutions, with Microsoft launching Copilot Merchant Program
• June 9, 2025: Microsoft ends Bing Search APIs, redirecting customers to Azure AI Agents
• August 7, 2025: Research reveals ChatGPT uses Google search despite official Bing partnership claims
• August 7, 2025: OpenAI launches GPT-5 with unified reasoning system architecture
• September 29, 2025: OpenAI launches Instant Checkout for ChatGPT with Stripe partnership
• October 28, 2025: Microsoft and OpenAI announce new definitive agreement restructuring partnership with modified ownership, extended IP rights, and independent AGI verification

Summary

Who: Microsoft Corporation and OpenAI announced the partnership restructuring. Microsoft holds approximately $135 billion in OpenAI Group PBC, representing roughly 27 percent ownership on an as-converted diluted basis. The agreement affects all OpenAI stakeholders including employees, investors, and the OpenAI Foundation.

What: The companies signed a new definitive agreement that maintains core partnership elements while introducing substantive modifications. Changes include extended Microsoft IP rights through 2032, independent expert panel for AGI verification, $250 billion Azure services commitment, elimination of Microsoft's right of first refusal for compute services, expanded joint product development rights, and permission for OpenAI to release open weight models.

When: The announcement occurred on October 28, 2025, reflecting the partnership's transformation from the original July 2019 investment. IP rights extend through 2032, research IP rights continue until AGI verification or 2030, and revenue sharing remains until the expert panel verifies AGI.

Where: The partnership encompasses global operations affecting Microsoft's Azure cloud infrastructure, OpenAI's model development and deployment, and commercial relationships spanning enterprise customers, government entities, and consumer applications worldwide.

Why: The restructuring addresses the partnership's maturation from research investment to complex commercial relationship. The agreement balances Microsoft's need for extended IP protection and AGI development flexibility against OpenAI's requirements for infrastructure guarantees, expanded partnering options, and greater autonomy in technical and commercial decisions as it transitions to a public benefit corporation structure.