ChatGPT, the artificial intelligence program that’s captivating Silicon Valley with its polished prose, had its origins three years ago when tech investor Sam Altman became CEO of chatbot developer OpenAI.
Mr. Altman then decided to pull the OpenAI research lab away from its non-profit roots and embrace a new strategy as it sought to develop software that could fully mirror human intelligence and capabilities – what AI researchers call “artificial general.” Call intelligence.” Mr. Altman, who had made his name as president of famed startup accelerator Y Combinator, would oversee the creation of a new for-profit arm, believing that OpenAI needed to become an aggressive fundraiser in order to to fulfill its founding mission.
Since then, OpenAI has had financially strong partners like Microsoft Corp. Landed MSFT -1.73%, creating products that caught the attention of millions of netizens and trying to raise more money. Altman said the company’s tools could transform technology much like the invention of the smartphone and address broader scientific challenges.
“They’re incredibly embryonic right now, but as they develop, we get the creativity spurt and new superpowers — none of us are going to want to go back,” Mr. Altman said in an interview.
Shortly after becoming CEO, Mr. Altman received $1 billion in funding after flying to Seattle to demonstrate an artificial intelligence model to Microsoft CEO Satya Nadella. The deal was a marked change from the early days of OpenAI, when the goal was to create value for everyone rather than shareholders.
The deal with Microsoft gave OpenAI the computing resources it needed to train and improve its artificial intelligence algorithms, leading to a number of breakthroughs.
OpenAI’s Dactyl system for manipulating objects, an older project shown in 2018 by a robotic hand holding a block.
Photo: OPENAI/Portal
First there was Dall-E 2, a project released in September that allowed users to create realistic art from strings of text, like “an Andy Warhol-style painting of a bunny with sunglasses.” And then there was ChatGPT, the chatbot that gives users fun and intelligent responses to prompts like “Describe a debate between two college students about the value of a liberal arts education.”
In October, Microsoft announced it would integrate OpenAI’s models into the Bing search app and a new design program called Microsoft Design.
OpenAI is currently in advanced discussions to sell employee-owned stock, people familiar with the matter said. A previous takeover bid valued OpenAI’s shares at around $14 billion, the people said, and a higher price for the current bid has been discussed. Microsoft is also in advanced talks to increase its investment in the company, The Wall Street Journal reported.
Despite recent advances, some investors and researchers have expressed skepticism that Mr. Altman can generate significant revenue from OpenAI’s technology and achieve his stated goal of achieving artificial general intelligence. Mr. Altman’s first startup, a social networking app called Loopt, sold for nearly the amount of money investors put in.
Mr. Altman also faced broader concerns from members of the AI community for backtracking the company on its promise to be transparent about its research and avoid shareholder enrichment. Instead, OpenAI has become more closed over time, researchers said.
“They want to acquire more and more data, more and more resources to build big models,” said Emad Mostaque, founder of Stability AI, a competing startup that has eased restrictions on its imaging program, Stable Diffusion, and made it open-source and free to Developer.
An OpenAI spokeswoman said the company has made its technology available in a variety of ways, including open-sourcing certain AI models.
OpenAI began as a nonprofit organization in 2015 with grants from Mr. Altman, Tesla Inc. CEO Elon Musk, LinkedIn co-founder Reid Hoffman, and other supporters. Working out of an office in San Francisco’s Mission District, the team sought to provide a research counterbalance to big tech companies like Alphabet Inc.’s Google, which tightly shielded their AI initiatives from the public eye.
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Instead of pursuing corporate profit, OpenAI promised to advance technology for the good of mankind. The group’s charter promised to abandon the race to develop artificial general intelligence if a competitor got there first.
This approach has changed. In 2019, OpenAI spawned its first group of investors and capped returns at 100x the cost of their contributions. Following Microsoft’s investment, Mr. Altman pushed OpenAI to generate more revenue to attract funding and support the computing resources needed to train its algorithms.
The deal also gave Microsoft a strategic foothold in the arms race to capitalize on advances in AI. Microsoft has become OpenAI’s preferred partner for the commercialization of its technologies, an agreement that allows Microsoft to easily integrate OpenAI’s models into products such as Bing. Microsoft declined to comment.
Backed by the funding, OpenAI accelerated the development and release of its AI models to the public, an approach that industry observers have described as more aggressive than the tactics used by larger, more scrutinized competitors like Google.
To help with employee compensation, Mr. Altman also instituted occasional takeover bids to help employees sell their stock. He said OpenAI has no plans to be acquired or go public.
OpenAI has capped gains for some venture investors to about 20 times their investments, with the possibility of higher returns the longer they wait to sell their stakes, people familiar with the terms said. Mr. Altman said that the limited investment structure is necessary to ensure that the value of OpenAI flows not only to investors and employees, but also to humanity in general.
Mr. Altman has said in recent discussions with investors that the company would soon be able to generate up to $1 billion in annual revenue, in part by charging consumers and businesses for its own products, the people said.
Mr. Altman has previously said that he would get input on how to make money for investors by asking the question to a software program that demonstrates general intelligence, which would then provide the answer.
So far, OpenAI has raked in tens of millions in revenue, mostly from selling its programmable code to other developers, according to people familiar with the company’s financial details. Mr. Altman said OpenAI is still early in its product monetization strategy.
Some early users of ChatGPT have reported issues where the program is prompted to solve basic math problems. Mr. Altman acknowledged that the program’s results often contained factual errors.
“It knows a lot, but the danger is that it’s confident and wrong a significant portion of the time,” he wrote on Twitter this month.
Write to Berber Jin at [email protected] and Miles Kruppa at [email protected]
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