Zone Media. Hi, I'm Edzetron, and this is your weekly better offline monologue. Precarious. That's the nature of the GENERATIVAI industry, and especially open ai. A company that has never made a profit, has no pathway to profitability and is contingent upon other companies spending tens of billions of dollars on new infrastructure to power their models in the future. Throughout countless podcasts and newsletters, I've argued that all of these factors mean the open AI and by extension, the greater GENERATIVEAI industry, will eventually collapse. Open ai is just one of a long line of dominoes, and it really only takes one to four before the entire thing collapses. But by comparison, I haven't really paid nearly as much of the attention as I should have to the unusual structure of open ai, which I believe will also contribute to its downfall. Open ai was initially started as a nonprofit intended to further the safe development of artificial intelligence, if you believe them, Over time it morphed into an entirely different beast, becoming the most valuable startup in history, and the startup that has now raised the most capital in history sort of, but for legal reasons, it couldn't quite walk away from its nonprofit origins, and so we're now left with this strange hybrid that consists of a nonprofit that owns much of open AI's intellectual property and assets, and a for profit business sort of tacked on awkwardly at the side. In order to satiate its infinite thirst for capital, open Ai must radically restructure the entire organization, moving valuable assets and intellectual property from the nonprofit to the for profit entity. Their ability to raise money is entirely contingent upon this, as generally investors don't plow tens of billions of dollars into philanthropic ventures where they will never see a return. Indeed, many of open AI's previous funding rounds have had caveats that would radically alter the terms of their deal if open ai fails to convert into a for profit business. Last October, they raised six point six billion dollars from a bevy of investors, but the deal included a covenant of sorts that should they fail to convert into a full profit entity in two years. Of October twenty twenty six, the investment would convert into a loan. Open Ai would in effect have to return the capital to investors and potentially pay a punishing interest rate. Similarly, open AI's latest forty billion dollar with soft Bank is structured in a way where ten billion of the dollars are contingent on open ai becoming a for profit business. The point I'm trying to make is that for open Ai, this current structure represents an existential threat. In many ways. It is more dire than any shortage of compute capacity or the fact that they spend billions of dollars more than they'll ever make. So they just change structure, right, what's the big deal? Well, this is a complex and bureaucratic procedure that typically only happens in sectors like healthcare, where hospitals are bought out by larger for profit companies. I struggle to think of any similar examples in tech, and even if those examples exist, they don't involve entities of the size in value of open Ai or indeed, the prominence. The transformation isn't something that Sam Mortman can do unilaterally either. In essence, he needs that the consent of regulators and lawmakers in the State of California. We've already seen open aiy's moves be challenged but the likes of Elon Musk and Mark Zuckerberg, although these efforts did not or have yet to amount to much, though there is an upcoming trial with Elon mask over this. Part of the complexity comes from the very nature of what it means to be a nonprofit. Nonprofits enjoy certain tax benefits, both from their exemption from taxation to the benefits that come when a person makes a charitable donation to a non profit. If you give money to the Red Cross or a church or whatever, you can write that off against your taxes. As a result, open ai is constrained by what it can do with the assets that are held within the nonprofit. Those assets are supposed to be used for the benefit of society, it to serve some kind of charitable purpose. Open AI can't just transfer them to a for profit entity. Doesn't work like that, nor should it, even though they're very much trying to make it. Linked to this in the episode Notes, but a recent petition against open AI's restructuring alleges that open ai has already effectively broken the rules against how nonprofits should operate and manage their assets, but the first violation coming in twenty nineteen, right at the start of open AI's metamorphosis and around the time when it obtained its first billion dollars worth of investment from Microsoft. Addressed to the Attorney General of California and signed by innumerable figures in California and national philanthropy, it articulates a compelling case that open ai has already broken the law in several meaningful ways and urges the state to take action to prevent a further dilution of the open ai charitable mission. It describes these violations as and I quote, factually complex but legally simple. It claims that the twenty nineteen restructuring which created the for profit element involved the wrongful transfer of assets from the nonprofit. This is bad in and of itself, but as time dragged on the influence and relevance of the nonprofit wing over the for profit entity, the effectively ended. It gives the example of the November twenty twenty three coups, when Sam Altman was fired from the company over alleged dishonesty about the safety processes surrounding model development, and also a bunch of other stuff like not telling the board that chat GPT was coming out anyway. This firing, the letter states, came at the behest of the nonprofit directors. As we all know. It didn't take sam Altman long to return to the helm of open ai and the same role that he'd left. Many of the board members that had approved distermination left, and though they signed a letter, it was very much a they have me my family kind of thing, or I should say they have my stock units, and they were replaced by those who are more aligned for the for profit goals of open Ai. The petition also makes the case that open ai is renunciation of its commitment to open source research within its purpose clause, the thing that defines what a nonprofit is for also represented in illegal diversion of assets. Open source software benefits whoever uses it, whereas proprietary software, even if it's provided for free, there's comparatively fewer benefits to society. You can't change your modify or improve a program, and you're at the best. You're really at whatever the vendor wants to do as far as accessing or using the platform or program or whatever it might do. In practice, there's little open about open ai. They share little source code and don't even provide specifics about the training data they use. They're less concerned with public research and now shrouds their development in the same cloak of secrecy that you would expect from basically any other tech company. Now they're claiming they're going to release an open weighted model, but it's bullshit. I'm sorry, that's not enough. Now, the letter does make some specific demands. It wants the AG to investigate what assets were siphoned off from the nonprofit, block any conversion until the investigation is completed, and make sure that all charitable assets are returned to the nonprofit, and indeed to create a truly independent entity separate from Sam Morltman and the business interests of open ai, to act as a steward for these assets. If this petition succeeded in delaying the conversion, open AI's future becomes much more uncertain and perhaps may not even be possible. It'll make it harder to raise new funds that would only increase their cash burners. Open ai will now be to start making repayments and investments that were automatically converted into loans. Will it succeed, Maybe First, this petition doesn't come from arrival with an extra grind against Sam Altman. Like Elon Musk, the Black Freedom Fund, the Asian Law Caucus in the California Teamster's Public Affairs COUNTSL aren't exactly the natural adversaries of Vaultman, unless they, of course, secretly hate people who wear Patagolia vests, in which case I retract the entire art sentence and also add that I heartily congratulate them and agree with them. Moreover, this petition isn't framed about tech or AI or AI safety, but rather something far more simple. It's about what a nonprofit is and how it should be run. And if, as the letters authors argue, open AI should be allowed to restructure without being challenged or scrutinized, it will set a dangerous precedent that would make it harder to protect the charitable mission of nonprofits and make them easier for them to be plundered. Like I'd argue open AI has, it's a strong case. While it's hard to tell if the Attorney General will take it on, it could lay the groundwork for open AI's demise, and I'm sure some of you would love them well. No, I might too.

Zone Media. Hi, I'm Edzetron, and this is your weekly better offline monologue. Precarious. That's the nature of the GENERATIVAI industry, and especially open ai. A company that has never made a profit, has no pathway to profitability and is contingent upon other companies spending tens of billions of dollars on new infrastructure to power their models in the future. Throughout countless podcasts and newsletters, I've argued that all of these factors mean the open AI and by extension, the greater GENERATIVEAI industry, will eventually collapse. Open ai is just one of a long line of dominoes, and it really only takes one to four before the entire thing collapses. But by comparison, I haven't really paid nearly as much of the attention as I should have to the unusual structure of open ai, which I believe will also contribute to its downfall. Open ai was initially started as a nonprofit intended to further the safe development of artificial intelligence, if you believe them, Over time it morphed into an entirely different beast, becoming the most valuable startup in history, and the startup that has now raised the most capital in history sort of, but for legal reasons, it couldn't quite walk away from its nonprofit origins, and so we're now left with this strange hybrid that consists of a nonprofit that owns much of open AI's intellectual property and assets, and a for profit business sort of tacked on awkwardly at the side. In order to satiate its infinite thirst for capital, open Ai must radically restructure the entire organization, moving valuable assets and intellectual property from the nonprofit to the for profit entity. Their ability to raise money is entirely contingent upon this, as generally investors don't plow tens of billions of dollars into philanthropic ventures where they will never see a return. Indeed, many of open AI's previous funding rounds have had caveats that would radically alter the terms of their deal if open ai fails to convert into a for profit business. Last October, they raised six point six billion dollars from a bevy of investors, but the deal included a covenant of sorts that should they fail to convert into a full profit entity in two years. Of October twenty twenty six, the investment would convert into a loan. Open Ai would in effect have to return the capital to investors and potentially pay a punishing interest rate. Similarly, open AI's latest forty billion dollar with soft Bank is structured in a way where ten billion of the dollars are contingent on open ai becoming a for profit business. The point I'm trying to make is that for open Ai, this current structure represents an existential threat. In many ways. It is more dire than any shortage of compute capacity or the fact that they spend billions of dollars more than they'll ever make. So they just change structure, right, what's the big deal? Well, this is a complex and bureaucratic procedure that typically only happens in sectors like healthcare, where hospitals are bought out by larger for profit companies. I struggle to think of any similar examples in tech, and even if those examples exist, they don't involve entities of the size in value of open Ai or indeed, the prominence. The transformation isn't something that Sam Mortman can do unilaterally either. In essence, he needs that the consent of regulators and lawmakers in the State of California. We've already seen open aiy's moves be challenged but the likes of Elon Musk and Mark Zuckerberg, although these efforts did not or have yet to amount to much, though there is an upcoming trial with Elon mask over this. Part of the complexity comes from the very nature of what it means to be a nonprofit. Nonprofits enjoy certain tax benefits, both from their exemption from taxation to the benefits that come when a person makes a charitable donation to a non profit. If you give money to the Red Cross or a church or whatever, you can write that off against your taxes. As a result, open ai is constrained by what it can do with the assets that are held within the nonprofit. Those assets are supposed to be used for the benefit of society, it to serve some kind of charitable purpose. Open AI can't just transfer them to a for profit entity. Doesn't work like that, nor should it, even though they're very much trying to make it. Linked to this in the episode Notes, but a recent petition against open AI's restructuring alleges that open ai has already effectively broken the rules against how nonprofits should operate and manage their assets, but the first violation coming in twenty nineteen, right at the start of open AI's metamorphosis and around the time when it obtained its first billion dollars worth of investment from Microsoft. Addressed to the Attorney General of California and signed by innumerable figures in California and national philanthropy, it articulates a compelling case that open ai has already broken the law in several meaningful ways and urges the state to take action to prevent a further dilution of the open ai charitable mission. It describes these violations as and I quote, factually complex but legally simple. It claims that the twenty nineteen restructuring which created the for profit element involved the wrongful transfer of assets from the nonprofit. This is bad in and of itself, but as time dragged on the influence and relevance of the nonprofit wing over the for profit entity, the effectively ended. It gives the example of the November twenty twenty three coups, when Sam Altman was fired from the company over alleged dishonesty about the safety processes surrounding model development, and also a bunch of other stuff like not telling the board that chat GPT was coming out anyway. This firing, the letter states, came at the behest of the nonprofit directors. As we all know. It didn't take sam Altman long to return to the helm of open ai and the same role that he'd left. Many of the board members that had approved distermination left, and though they signed a letter, it was very much a they have me my family kind of thing, or I should say they have my stock units, and they were replaced by those who are more aligned for the for profit goals of open Ai. The petition also makes the case that open ai is renunciation of its commitment to open source research within its purpose clause, the thing that defines what a nonprofit is for also represented in illegal diversion of assets. Open source software benefits whoever uses it, whereas proprietary software, even if it's provided for free, there's comparatively fewer benefits to society. You can't change your modify or improve a program, and you're at the best. You're really at whatever the vendor wants to do as far as accessing or using the platform or program or whatever it might do. In practice, there's little open about open ai. They share little source code and don't even provide specifics about the training data they use. They're less concerned with public research and now shrouds their development in the same cloak of secrecy that you would expect from basically any other tech company. Now they're claiming they're going to release an open weighted model, but it's bullshit. I'm sorry, that's not enough. Now, the letter does make some specific demands. It wants the AG to investigate what assets were siphoned off from the nonprofit, block any conversion until the investigation is completed, and make sure that all charitable assets are returned to the nonprofit, and indeed to create a truly independent entity separate from Sam Morltman and the business interests of open ai, to act as a steward for these assets. If this petition succeeded in delaying the conversion, open AI's future becomes much more uncertain and perhaps may not even be possible. It'll make it harder to raise new funds that would only increase their cash burners. Open ai will now be to start making repayments and investments that were automatically converted into loans. Will it succeed, Maybe First, this petition doesn't come from arrival with an extra grind against Sam Altman. Like Elon Musk, the Black Freedom Fund, the Asian Law Caucus in the California Teamster's Public Affairs COUNTSL aren't exactly the natural adversaries of Vaultman, unless they, of course, secretly hate people who wear Patagolia vests, in which case I retract the entire art sentence and also add that I heartily congratulate them and agree with them. Moreover, this petition isn't framed about tech or AI or AI safety, but rather something far more simple. It's about what a nonprofit is and how it should be run. And if, as the letters authors argue, open AI should be allowed to restructure without being challenged or scrutinized, it will set a dangerous precedent that would make it harder to protect the charitable mission of nonprofits and make them easier for them to be plundered. Like I'd argue open AI has, it's a strong case. While it's hard to tell if the Attorney General will take it on, it could lay the groundwork for open AI's demise, and I'm sure some of you would love them well. No, I might too.