--:-- [Theme music fades out]
--:-- Jessica Mendoza: Welcome to The Journal. I'm Jessica Mendoza.
--:-- Ryan Knutson: And I'm Ryan Knutson. It's Tuesday, October 1st.
--:-- Jessica Mendoza: Today, we're talking about OpenAI, the company behind ChatGPT. It's had a lot of drama in the past year. Let's start with the basics. What's been going on at OpenAI?
--:-- Deepa Seetharaman: OpenAI, the company behind ChatGPT, has had a lot of drama in the past year. There was the sudden firing and almost immediate rehiring of its CEO, Sam Altman. Sam Altman is back as the chief executive of OpenAI.
--:-- Ryan Knutson: After that, a bunch of OpenAI's top scientists quit. These are just the latest in a string of departures, leading many to wonder just what is going on over there.
--:-- Deepa Seetharaman: The company also very publicly found itself in hot water for training its chatbot on copyrighted material. Hollywood megastar Scarlett Johansson is taking on one of the biggest names in tech, OpenAI co-founder Sam Altman.
--:-- Ryan Knutson: And then, last week, a couple of other bombs dropped. The company's chief technology officer announced she was stepping down, just as news broke that OpenAI was remaking itself from a nonprofit to a for-profit corporation.
--:-- Jessica Mendoza: It's a seismic shift for a company that, when it was founded, pledged to develop artificial intelligence for the public interest.
--:-- Deepa Seetharaman: Our colleague Deepa Sitharaman has reported on OpenAI's entire saga. What has it been like covering OpenAI?
--:-- Deepa Sitharaman: Dynamic. Great word. Yes, it's been really fast-moving and there'll be lulls and then all of a sudden a bunch of stuff will happen all on top of each other, which basically underscores the fact that it's a time of chaos in this company's life.
--:-- Ryan Knutson: I mean, you have this company that is going through tremendous change, and so you're seeing in real time a company tearing itself apart.
--:-- Deepa Sitharaman: Now, as OpenAI tries to piece itself back together, its decisions could change the business of artificial intelligence forever.
--:-- Jessica Mendoza: Welcome to The Journal. Our show about money, business, and power.
--:-- Ryan Knutson: Coming up on the show, what exactly is happening at OpenAI?
--:-- Deepa Sitharaman: Things at OpenAI have been coming to a head since last November, when the nonprofit board that governs the company abruptly fired CEO and co-founder Sam Altman.
--:-- Ryan Knutson: Sam, at that point, at least from the external perspective, really seemed to be on top of the world, incredibly central to the broader AI movement.
--:-- Deepa Sitharaman: And, you know, somebody who just went around the world talking to world leaders and talking to policymakers and visiting the White House and just generally looking like the face of this revolution.
--:-- Ryan Knutson: But then, you know, he's in Vegas. He is asked to join a call. He sees his co-founder, Ilya Setzkevert, and Ilya tells him, hey, Sam, you're fired, basically.
--:-- Deepa Sitharaman: The move sent shockwaves through the company. Investors and a huge share of the employees rallied around Altman. And just five days later, Altman was rehired as CEO.
--:-- Ryan Knutson: The dramatic reversal highlighted tensions that had been brewing at the company almost from its founding.
--:-- Deepa Sitharaman: When OpenAI was started in 2015, one of its main priorities was safety. Making sure that the potentially powerful technology its scientists were developing would never spin out of control.
--:-- Ryan Knutson: The point of the company was to be a research lab that would be uniquely motivated, because it was a nonprofit, to create powerful and valuable AI without the motivation or the corrupting influence of having to turn a profit.
--:-- Deepa Sitharaman: You know, companies have a set of incentives where they have to make money and generate a profit and continuously grow. This wasn't supposed to be that.
--:-- Ryan Knutson: It was supposed to be a initiative to really understand and develop the world's most powerful AI systems without those incentives.
--:-- Deepa Sitharaman: So being a nonprofit was like part of its DNA. That was the point, really. That was the point.
--:-- Ryan Knutson: But here's the thing. AI, developing AI, costs a lot of money. Surprise! A lot of money. It's not chump change. I mean, you need billions of dollars in some cases to develop these AI models.
--:-- Deepa Sitharaman: And you need to hire a lot of really incredible people who work at places like Google and Facebook and elsewhere, some of the brightest scientific minds trying to bankroll its lead in the AI race while also staying true to its founding mission became a constant challenge for OpenAI.
--:-- Ryan Knutson: A few years in, the organization's lead funder left after a power struggle over how OpenAI was being run, and all his money left with him to try to solve its funding crunch.
--:-- Deepa Sitharaman: OpenAI decided to court new investors, so it created a for-profit arm within its nonprofit org structure.
--:-- Ryan Knutson: I feel like I hear about for-profit companies that have nonprofit arms, but the opposite is a little bit less common.
--:-- Deepa Sitharaman: Yeah, definitely. I mean, this is the inversion of that. And so then you have this company that is inside of a nonprofit. So initially, it too is telling investors, our goal isn't to maximize profits. Our goal is to do this research, and you are at risk of potentially losing your entire investment.
--:-- Ryan Knutson: And that is sort of the message. And they start to take more investments from other investors. There are a lot of like venture capital firms.
--:-- Deepa Sitharaman: And, you know, over time, they start to take on what winds up being billions of dollars from Microsoft.
--:-- Ryan Knutson: And as this is all happening, there are questions being asked of, you know, should we be taking this kind of money? Does it make sense?
--:-- Deepa Sitharaman: Then in 2022, OpenAI released ChatGPT. It was an instant sensation. But that meteoric rise didn't ease the tensions at OpenAI. It made them worse.
--:-- Ryan Knutson: While the company was publicly hailed for its groundbreaking product, some inside OpenAI worried that the chatbot's success would encourage the organization to release new products even more quickly.
--:-- Deepa Sitharaman: There are some employees that have some misgivings about, you know, there's a lot of different bad things that can happen when you have these kinds of systems that speak like humans and can be very convincing if they don't have the sufficient guardrails.
--:-- Ryan Knutson: Right. And the product is really compelling and the company just keeps improving it and trying to stress-testing it and trying to get better and better.
--:-- Deepa Sitharaman: But for some of the employees and some of the researchers, there's a little bit of a feeling that, OK, well, maybe we should have done this before. But at the time, it's really explained away kind of as, well, no one knew it would get this big. It was just unpredictably viral.
--:-- Ryan Knutson: The concerns over OpenAI's guardrails are part of what led the nonprofit board to fire Altman.
--:-- Deepa Sitharaman: But the investors who'd been putting money into the company played a big part in bringing him back.
--:-- Ryan Knutson: This is a very short-lived firing. I think end-to-end, we're talking about five days.
--:-- Deepa Sitharaman: So much so that the company took to calling this period of the company's life the blip as just like, oh, it's just something that happened. And now it's back to normal.
--:-- Ryan Knutson: But nothing went back to normal after that.
--:-- Deepa Sitharaman: That's next. Sam Altman's return to the CEO's office was a tipping point for OpenAI.
--:-- Ryan Knutson: Once he was back, investors started claiming more power. One of their first moves was to kick off the board members who had voted to fire Altman.
--:-- Deepa Sitharaman: The big lesson among the investors is that OpenAI needs to start looking more predictable, has a board that has not nonprofit people on it, but people who have run companies before or are big parts of companies and understand how business works, understand how tech works.
--:-- Ryan Knutson: I mean, that's where a lot of OpenAI's investors are sort of saying very publicly, like, this needs to be a more predictable entity because they'll feel more in control and more like they understand this company.
--:-- Deepa Sitharaman: And that a group of a few people can't just overthrow the CEO without warning again.
--:-- Ryan Knutson: Soon, OpenAI started hiring new board members to replace the ones who'd been removed.
--:-- Deepa Sitharaman: They're adding a ton of board members this year to try to make it look like it's a more serious board.
--:-- Ryan Knutson: They all like very corporate, very tech background, and very just kind of what you expect of a Silicon Valley-style board member.
--:-- Deepa Sitharaman: And they got people from government, former government officials, like a board that people can really count on to not make rash, sudden decisions like firing the CEO.
--:-- Ryan Knutson: That mainly if they ever wanted to fire Sam again, there would be a process in place and notice, and there would be a lot of predictability with any kind of decision.
--:-- Deepa Sitharaman: And this also starts a series of conversations internally about what it would look like if OpenAI shed the nonprofit altogether.
--:-- Ryan Knutson: Hmm. How did employees react to that idea?
--:-- Deepa Sitharaman: What you see is that over time, some people that are part of the old culture, so the culture that thinks about AI safety or thinks about sort of the unintended consequences of AI, who think about things like existential risk, those people increasingly feel squeezed out of the company.
--:-- Ryan Knutson: And then you have more people coming in and getting hired that are involved in product and know how to sell things and understand what people want.
--:-- Deepa Sitharaman: And in the spring and through the first half of the year, OpenAI hires its first CFO, Chief Financial Officer.
--:-- Ryan Knutson: It hires its first Chief Product Officer. Both signs that it's trying to be a company that is building products and just trying to be more appealing to the general consumer and make money that way.
--:-- Deepa Sitharaman: And you know, all the while, though, you've got concerns that this push into products and building shining like what one executive would later call shining products, that this is the kind of thing that's going to distract the company from its original mission of building one artificial intelligence, and two, building it in a way that is safe and secure and can provide prosperity broadly for the world.
--:-- Ryan Knutson: Right. That now it's really distracted by this desire to make money and a desire to be relevant.
--:-- Deepa Sitharaman: Among the people who felt like they were being squeezed out were some of OpenAI's co-founders, whose vision shaped the company's original mission.
--:-- Ryan Knutson: One of the big first departures is Ilya Satskiver, who is like this highly respected chief scientist who OpenAI researchers really, really admired inside the company.
--:-- Deepa Sitharaman: And he leaves in May. And, you know, his departure really marks kind of the end of an era where, you know, that, where the company felt like it was part of this great scientific vanguard, right?
--:-- Ryan Knutson: And now this guy who's so at the forefront of that is leaving.
--:-- Deepa Sitharaman: I mean, there are plenty of scientists left at the company. I don't want to make it sound like they've all fallen, that they've all left. But this was a really big one.
--:-- Ryan Knutson: This was the initial draw for so many of those scientists early on.
--:-- Deepa Sitharaman: Sutskover's exit set off a ripple effect. Immediately after he left, another key researcher who also worked on safety, a man named Jan Laika, resigned.
--:-- Ryan Knutson: A few months later, John Shulman, another co-founder and a widely respected researcher, left as well.
--:-- Deepa Sitharaman: And so you've got this really within a few months, just this like boom, boom, boom, three co-founders step away.
--:-- Ryan Knutson: These are sort of key safety people at the company. Like what did that mean for safety and that as a priority at OpenAI?
--:-- Deepa Sitharaman: I think there is a feeling among some factions of the company that OpenAI was taking the eye off of safety increasingly.
--:-- Ryan Knutson: And putting it more on developing products that people would want to use, which is exactly what the company was trying to avoid when it was founded.
--:-- Deepa Sitharaman: And so there's a feeling of like, oh, we've just actually done a full U-turn and we are no longer what we were.
--:-- Ryan Knutson: And then there are other factions at the company that say it's not about, you know, we're not doing less on safety. We're just doing more on product.
--:-- Deepa Sitharaman: Last week, OpenAI took another big hit when its chief technology officer, Mira Maradi, resigned.
--:-- Ryan Knutson: Altman found out just a few hours before the public did.
--:-- Deepa Sitharaman: She was an important leader and an integral part of OpenAI's operations and strategy.
--:-- Ryan Knutson: She was the CTO of what is one of the most important technical companies in the world.
--:-- Deepa Sitharaman: And she was in charge of creating processes and building products and building out teams.
--:-- Ryan Knutson: I mean, she's a central cog in the system. You know, she really made that company function.
--:-- Deepa Sitharaman: And so the fact that she's leaving, I mean, it takes this institutional knowledge out of the company and it's not an insignificant amount of institutional knowledge.
--:-- Ryan Knutson: You know, this is a person that helped resolve conflicts and helped teams kind of get their products out the door.
--:-- Deepa Sitharaman: In a statement announcing her resignation, Marati said she wanted to, quote, create the time and space to do my own exploration.
--:-- Ryan Knutson: Her departure, coming after so many key founders and executives left, is a major blow to OpenAI.
--:-- Deepa Sitharaman: When Marati resigned, Sam Altman was away, speaking at an Italian tech conference.
--:-- Ryan Knutson: On stage, he was asked about the upheaval back in Silicon Valley, and he said he hoped that this will, quote, be a great transition for everyone involved.
--:-- Deepa Sitharaman: A spokesperson for OpenAI said, quote, we remain focused on building AI that benefits everyone, adding that, quote, the nonprofit is core to our mission and will continue to exist.
--:-- Ryan Knutson: This week, Altman is expecting to close a fundraising cycle of about $6.5 billion.
--:-- Deepa Sitharaman: And he's getting some marquee names, NVIDIA, SoftBank, and a new round of funds from Microsoft.
--:-- Ryan Knutson: If Altman is successful, OpenAI is expected to hit a valuation of $150 billion.
--:-- Deepa Sitharaman: He's been, you know, the pitchman. He's been talking to people about what that could look like.
--:-- Ryan Knutson: And in the process of those discussions, he's also committed to saying that OpenAI is going to be for-profit.
--:-- Deepa Sitharaman: And it commits to doing that within a two-year timeframe, at which point investors who aren't satisfied can ask for their money back.
--:-- Ryan Knutson: It's a real risk, and it puts a lot of pressure on the company to transition to make this shift rather quickly.
--:-- Deepa Sitharaman: And then there's another really big shift that happens, which is, you know, up until now, Sam Altman hasn't had any kind of equity in OpenAI.
--:-- Ryan Knutson: And that was a selling point, right? He's been telling politicians and lawmakers all over the world that the fact that he doesn't have a stake in OpenAI, that that means that he's more neutral.
--:-- Deepa Sitharaman: And that means he can slow down development if it seems like it's going too quickly.
--:-- Ryan Knutson: And it's a sign that he's sort of taken a step back so that he isn't corrupted by money.
--:-- Deepa Sitharaman: And now he's likely to take some kind of equity stake in OpenAI.
--:-- Ryan Knutson: So is OpenAI's core identity fundamentally different now? Is it a different company?
--:-- Deepa Sitharaman: I mean, I don't think you can argue that it hasn't fundamentally changed. You know, it is it's just an argument of whether or not those changes add up to a good thing.
--:-- Ryan Knutson: And there's a lot of disagreement about that.
--:-- Deepa Sitharaman: But everyone can see that it's just so far from what it started originally.
--:-- Ryan Knutson: And it's just changed so fundamentally. It's just not at all what it used to be.
--:-- Deepa Sitharaman: On a higher level, what does the shift at OpenAI mean? Like, will it affect the development of artificial intelligence as a sector?
--:-- Ryan Knutson: It's about incentives. And so now there are concerns that OpenAI has got a different set of incentives that maybe inspire the company to move even more quickly, even more aggressively, even more ambitiously about deploying its technology.
--:-- Deepa Sitharaman: And the concern is that less and less and less emphasis lands on the safety part that was so critical in the early stages.
--:-- Ryan Knutson: And that could kind of have a domino effect on other companies as well.
--:-- Deepa Sitharaman: Right. Right. Exactly. Because OpenAI is in the center of the spotlight and it is very influential among all the tech companies, including tech companies like Google.
--:-- Ryan Knutson: And so every time it makes a move, it does send a signal to the rest of the industry about what the norms might look like and what the norms might be.
--:-- Jessica Mendoza: That's all for today, Tuesday, October 1st. The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Ryan Knutson: Additional reporting in this episode by Tom Doton and Berber Jin.
--:-- Jessica Mendoza: Thanks for listening. See you tomorrow.
