OpenAI recently announced in a blog post its decision to transition into a for-profit entity while still upholding its fundamental goal of “ensuring that Artificial General Intelligence (AGI) benefits all of humanity.”

This change marks a departure from its initial establishment as a non-profit in 2015, which later evolved into a “capped” for-profit model. The non-profit section has been leading the company’s efforts in alignment with its mission. However, escalating operational costs, including the hefty $3 million price tag for server racks equipped with Nvidia’s Blackwell chips, have made this shift towards a for-profit model a necessary move, though it has stirred some controversy due to competitive pressures.

As it stands, OpenAI functions as a capped for-profit entity, consisting of two branches: the for-profit and the non-profit. The non-profit arm, along with its board members, oversees the governance of OpenAI and its undertakings. Although the for-profit division is able to issue equity to gather funds, it remains under the governance of the non-profit.

In an effort to draw additional investment, OpenAI is pivoting more towards a fully for-profit model. The existing cap on profits, set at 100 times the initial investment, is viewed by potential investors as a limitation. Any excess value generated beyond this cap reverts back to the non-profit section. Additionally, the current structure does not allow the board to fully cater to shareholder financial interests and expectations.

Financially, OpenAI is looking at a projected loss of $5 billion this year, against a revenue of $3.7 billion. This stark financial scenario likely influenced OpenAI’s decision to shift to a for-profit status to secure the funding necessary to stay competitive.

OpenAI aims to reorganize its for-profit subsidiary into a Delaware Public Benefit Corporation (PBC), which is a type of for-profit company that also serves public and social benefits. The primary interests of this PBC will be its common stock and the ongoing mission of OpenAI. This structure is similar to what other AI companies like Anthropic and xAI have adopted. The new PBC will also take over the management of the company’s business operations.

Meanwhile, the non-profit arm will continue focusing on philanthropic efforts in areas like healthcare, education, and science. It will retain a “significant interest” in the PBC, represented by shares valued fairly by independent advisors. OpenAI believes this arrangement will make its non-profit division one of the most well-funded non-profits in history.

The past few years have seen a surge in generative AI technology, accompanied by rising costs for necessary hardware. While the move to a for-profit model will provide better incentives for shareholders, the non-profit arm will still maintain the company’s core principles.