OpenAI's signature artificial intelligence model, ChatGPT, has become a regular tool in many of our everyday lives, but most consumers may not realize that OpenAI isn't like other Silicon Valley startups that won big. The research lab was founded as a nonprofit organization with a mission to serve the world with artificial intelligence. And while OpenAI has no shortage of critics, it's hard to argue with their success — according to Vox, it's one of the highest valued startups in history.
But now, OpenAI wants to shed its nonprofit status and recreate itself as a for-profit corporate entity. Vox reports that the move may be at least partly at the behest of OpenAI's largest investor, Microsoft, which wants the organization to shift away from development and toward turning an actual profit.
According to the New York Times, OpenAI's revenue hit $300 million in August, with expected annual sales of about $3.7 billion in 2024. But despite the staggering revenue growth — about 1,700 percent since the beginning of 2023 — the company burns through cash even faster, and is on track to lose $5 billion in 2024 alone.
OpenAI's gambit isn't as simple as filing new paperwork to declare the entity a for-profit corporation. The startup must instead sell its assets to a new for-profit arm, and the nonprofit entity will continue as merely an investor in the for-profit company. Experts say that it's sure to be a difficult process, largely due to high-profile conflicts between CEO Sam Altman and the board that led to major leadership changes and waves of employee resignations.
Questions still persist about who would really benefit from the planned transition and how the nonprofit arm would continue to fulfill its legal obligation to pursue charitable interests. Federal law prohibits the use of nonprofit assets for private benefit, and the nonprofit cannot sell its assets to a for-profit arm for less than fair market value without attracting the ire of the Internal Revenue Service or California's state Attorney General.
