On Monday, Microsoft and OpenAI announced that they had renegotiated the agreement binding the companies. For X, some say the ChatGPT makers have won against the Windows giant, but both sides are emerging victorious.
Most importantly, the new conditions solve a problem that has plagued OpenAI since it signed a deal with Amazon worth up to $50 billion.
This new agreement gives Microsoft exclusive access to all of OpenAI’s products and IP until the magic day when OpenAI produces AGI, in exchange for making the timeline of the partnership definitive. The agreement gives Microsoft a non-exclusive license to OpenAI IP for models and products through 2032.
The companies still refer to themselves as Microsoft OpenAI’s “primary cloud partners,” meaning that the majority of OpenAI’s cloud will likely be provided by Azure for the six years covered by the deal, even as OpenAI rushes to build out its own data centers with other partners. In October, OpenAI agreed to buy Microsoft’s cloud for an additional $250 billion. This sentence is a message to Microsoft shareholders that OpenAI will continue to be a huge customer of Azure.
OpenAI products will “initially ship on Azure, unless Microsoft is unable or chooses not to support required functionality,” the companies said. But importantly, “OpenAI can now offer any product to any cloud provider’s customers.”
Again, “first” is not clearly defined in this announcement. It’s unclear if that means it will be exclusive on Azure for a limited period of time, or if it just means that Microsoft will also join vendors with OpenAI’s latest products.
But the most important part of this term is that it resolves the possibility that Microsoft will sue OpenAI over its AI Labs contract with Amazon.
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To summarize the confusion, in February, OpenAI announced that Amazon would invest up to $50 billion in the model maker, including an initial investment of $15 billion and an additional $35 billion “over the coming months if certain conditions are met,” the companies said, without specifying what those terms were.
In return, OpenAI agreed to co-develop “stateful runtime technology” on AWS Bedrock, an AWS service that provides a variety of AI models and services. Stateful runtime is a technology that supports AI agents and enables them to remember tasks and context over long periods of time.
OpenAI also promised that AWS would have exclusive rights to offer OpenAI’s new agent creation tool, Frontier. And then there’s friction.
OpenAI’s original agreement with Microsoft prevented OpenAI from selling Frontier exclusively on AWS, and potentially prevented AWS from selling Frontier.
Microsoft had previously agreed to allow OpenAI to run some products, such as consumer ChatGPT, on other cloud providers, but retained exclusive rights to OpenAI products accessed through APIs such as Frontier.
In fact, on the same day that OpenAI announced its deal with AWS, Microsoft publicly disputed AWS’ exclusivity terms, writing (emphasis Microsoft):
“Microsoft will maintain exclusive licenses and access to intellectual property across OpenAI models and products. … Azure will continue to be the exclusive cloud provider for stateless OpenAI APIs. … Stateless API calls to OpenAI models that result from collaborations between OpenAI and third parties, including Amazon, will be hosted in Azure. … OpenAI’s first-party products, including Frontier, will continue to be hosted in Azure.”
Microsoft also emphasized that its terms remain in effect until OpenAI achieves AGI. The Financial Times reported that Microsoft is also considering legal action if necessary to enforce these terms and conditions.
Therefore, the new agreement eliminates Microsoft’s exclusive rights and resolves AWS’s legal exposure. Amazon CEO Andy Jassy celebrated the deal in a post on X, adding that it means OpenAI’s models will be available to customers on AWS Bedrock.
While this deal is good for OpenAI, Microsoft also scored some wins. The new agreement allows Microsoft to stop paying revenue shares to OpenAI, while OpenAI will continue to pay revenue shares to Microsoft through 2030, subject to a cap.
It’s hard to say exactly how much cash will flow into Microsoft, but it will likely be in the billions. Last quarter, Microsoft reported a one-quarter gain of $7.5 billion from its investment in OpenAI.
Surprisingly, Microsoft remains a major shareholder in OpenAI, owning about 27 percent of the commercial company, the company announced in October. We have benefited financially from OpenAI’s growth and even sales on AWS.
The downside, of course, is that Microsoft loses the additional cloud services it can sell as a result of its exclusive agreement with OpenAI.
It may not be very important. Just as OpenAI is courting Microsoft’s biggest competitor, Microsoft has a new cozy relationship with OpenAI rival Anthropic, and the cloud giant is using its own Claude AI to power its agent products.
The biggest winners here are the enterprises, who can choose their models and clouds while the giants compete with each other to provide services.
Here’s a timeline of recent changes in the relationship between Microsoft and OpenAI.
In October, Microsoft and OpenAI announced a new agreement to help OpenAI fend off a lawsuit from Elon Musk over its corporate structure that allows it to run products on other clouds without accessing APIs.
In November, OpenAI and Amazon signed their first multi-year agreement, giving OpenAI $38 billion worth of AWS cloud contracts.
In February, Amazon announced an investment of up to $50 billion in OpenAI, pending “certain conditions,” including exclusive technology development and hosting agreements for Frontier and Stateful Technologies. On the same day, Microsoft countered that AWS owns the technology exclusively.
In March, the FT reported that Microsoft was considering legal action.
In April, OpenAI and Microsoft announced a new agreement that includes a calendar end date for their exclusive partnership and the ability for OpenAI to run all of its products on other clouds. Microsoft no longer has to pay OpenAI revenue share. Microsoft remains a major shareholder in OpenAI.
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