OpenAI operates under a distinctive organizational structure that combines both nonprofit and for-profit elements.

This hybrid model includes OpenAI, Inc., a nonprofit entity, and OpenAI Global, LLC, a for-profit subsidiary established in 2019.

The design of this structure allows OpenAI to pursue its mission of advancing artificial intelligence while also engaging in commercial activities to fund its research and development efforts.

The foundation

The inception of OpenAI as a nonprofit organization in 2015 was the founders’ attempts to address concerns regarding the potential risks associated with artificial intelligence. The founders included Sam Altman, Elon Musk, and Ilya Sutskever.

The organization was established with the declared goal of advancing digital intelligence without the constraints of financial returns, to allow it to focus on a positive societal impact.

As OpenAI progressed, it became clear that relying solely on donations and grants was insufficient to sustain its ambitious research agenda.

In response, the organization introduced a capped-profit model in 2019, which allowed it to raise capital from investors while still adhering to its nonprofit mission. This model enables OpenAI to attract significant investments, particularly from major players like Microsoft, while capping profits at a maximum return of 100 times the initial investment. This cap is an attempt to prevent the organization from straying too far from its mission and to mitigate the risks associated with profit maximization.

The profit business

OpenAI Global, LLC is the for-profit subsidiary of OpenAI’s foundation.

OpenAI Global was established in 2019. This transition marked a significant shift in the operational structure of OpenAI, originally founded as a nonprofit organization in December 2015.

The establishment of OpenAI Global opened up a significant investment from Microsoft, which invested $1 billion in the organization.

This partnership provided not only financial resources but also access to Microsoft’s extensive cloud computing infrastructure through Azure. The collaboration enabled OpenAI to scale its research and development efforts, particularly in training large-scale AI models.

The emergence of OpenAI Global, LLC has positioned the organization as a leader in the AI field, attracting talent, investment, and partnerships that drive innovation. As the organization continues to evolve, it faces the ongoing challenge of balancing the demands of investors with its mission to create safe and beneficial AI technologies.

Similar profit-charity hybrids

OpenAI’s distinct structure has drawn comparisons to other hybrid organizations that seek to blend profit with purpose.

For instance, companies like Newman’s Own and Patagonia have adopted similar models, where a nonprofit entity owns and oversees for-profit operations.

In 2002, the founder of Patagonia, Yvon Chouinard, and Craig Mathews, owner of Blue Ribbon Flies, created a non-profit corporation to encourage other businesses to do the same.

In 1980 Paul Newman and his friend A.E. Hotchner decided to give friends homemade dressing in old wine bottles for the holidays. Their friends loved it and wanted more. Two years later, Newman’s Own Salad Dressing officially launched, focusing on ingredients you could find in your own kitchen, and generating over $300,000 in first-year profits. Paul declared, “Let’s give it all away to those who need it!”