Microsoft-OpenAI deal: How defining alliance of AI took place
21 Jan 2026

The relationship between Microsoft and OpenAI has been a major factor in the latter's cloud strategy.

However, internal documents reveal that Amazon was actually the first to partner with OpenAI.

In August 2016, an internal Microsoft presentation revealed that OpenAI was using Amazon Web Services (AWS) for its research under a deal worth $50 million in computing credits, for $10 million in committed funds.

Strategic move to partner with OpenAI
Partnership initiation

Seeing the potential of OpenAI, Microsoft CEO Satya Nadella reached out to OpenAI's CEO Sam Altman, hoping to strike a deal.

In late August 2016, Altman emailed Elon Musk about a potential new deal with Microsoft. "I have negotiated a $50 million compute donation from them over the next three years!" he wrote.

This marked the beginning of Microsoft's strategic alliance with OpenAI in its cloud business.

A game-changer for Azure
Benefits

The partnership with OpenAI was a major win for Microsoft.

The August 2016 presentation, "OpenAI on Azure Big Compute," called it a major opportunity to convert a high-profile customer to Azure.

It also highlighted larger goals like "thought leadership" in AI, a "halo effect" for Azure's GPU launch, and attracting a new audience of developers and start-ups.

The document noted that OpenAI was an unconstrained nonprofit whose research could enhance Microsoft's reputation in AI.

A turning point
Investment

In 2019, OpenAI restructured, keeping its nonprofit status but creating a new "capped profit" entity underneath it.

Microsoft agreed to invest $1 billion, with an option for a second billion, in exchange for exclusive cloud computing rights and a commercial license to OpenAI's technology.

The deal was announced in July 2019 with Altman saying that the creation of AGI would be the most important technological development in human history.

A strategic decision
Strategic shift

In a June 2019 email, Microsoft CTO Kevin Scott cited Google's AI advancements as a reason for the OpenAI investment.

He got "very, very worried" when he "dug in to try to understand where all of the capability gaps were between Google and us for model training."

Nadella forwarded Scott's email to Amy Hood, Microsoft's CFO.

"Very good email that explains why I want us to do this," Nadella wrote.

A controlling stake
Impact

Microsoft's $1 billion investment made it the dominant investor in OpenAI.

The partnership agreement stipulated that major decisions required approval from a majority of limited partners based on their contributions.

With 85% of the total, Microsoft had an effective veto power over "Major Decisions" such as changes to OpenAI's structure, distributions to partners, and any merger or dissolution.

This gave Microsoft significant control over the future direction of the company.