Microsoft is weighing legal action against Amazon and OpenAI over a multibillion-dollar cloud agreement that could test the limits of its long-standing partnership with the ChatGPT maker and deepen a growing rift between the companies.

At the centre of the dispute is a reported $50bn deal tied to OpenAI’s new commercial product, Frontier, and whether Amazon Web Services can offer access to it without breaching contractual obligations that has positioned Microsoft Azure as the exclusive gateway to OpenAI’s models.

There’s a whole lot of legalese and big tech pouting and posturing involved but below we’ll give an overview of what’s going on and what got us here.

Who’s Spit the Dummy and Why?

The issue raises questions about whether Amazon Web Services can distribute OpenAI’s models without breaching Microsoft’s long-standing cloud partnership with the ChatGPT maker.

Amazon and OpenAI say they are building a system that works around the contract. Microsoft – probably unsurprisingly – dispute this, saying the approach, while maybe not going against the letter of their agreement, is in bad faith.

Ahead of the launch of this new system – an enterprise platform for building and running AI agents called Frontier – OpenAI and Microsoft were still in talks to resolve the dispute without litigation, they added.

It’s the latest patch of rough in a developing rift between Microsoft and OpenAI as the latter pushes to loosen the constraints of its early contracts to cover the astronomic costs of building, training and running its models – despite recently closing a $110bn funding round. Diversifying its cloud partnerships is a good way to address this but, understandably, Microsoft views AWS as a major rival in the enterprise services game.

Beyond the headache of another bout of high-profile legal action, OpenAI’s plans for a public listing could be derailed if the dispute ends up in court.

The IPO is already complicated by a lawsuit filed by Elon Musk against chief executive Sam Altman, with whom he co-founded the startup in 2015. The world’s richest man is accusing Altman of abandoning its non-profit mission to enrich himself and other executives, with a trial scheduled to start next month.

What’s so Special About Frontier?

OpenAI’s Frontier deploys fleets of AI agents. The platform is the centrepiece of the OpenAI-Amazon partnership announced last month, alongside a pledge to buy $138bn in cloud services from AWS.

Microsoft had been OpenAI’s exclusive cloud provider since investing $1bn in the start-up in 2019 but gave up that right when it signed off on its restructuring in October.

However, it retained a clause covering application programming interfaces (APIs), the connections developers and businesses use to access OpenAI’s models. The clause requires all API calls to be routed through Azure.

When the three groups released parallel statements describing the Frontier product, Microsoft asserted that nothing had changed from the October agreement and it remained the exclusive cloud provider for OpenAI APIs.

The dispute hinges on the definition of “stateless” and “stateful” access to AI models. Large language models are “stateless” by default, retaining no information between user interactions. “Stateful” layers are added via applications to give them memory and context, which makes them more useful for businesses.

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Amazon and OpenAI are developing a system known as a “Stateful Runtime Environment” that runs in Amazon’s Bedrock AI platform. The system would access company data stored on AWS, allowing OpenAI agents to remember prior work, operate across software tools and data sources, and access computing power.

OpenAI maintains that its Amazon deal does not allow backdoor access to its stateless models. The startup has the right to make new products with third parties so long as they do not cross the “red line” of being primarily offered as an API.

Enterprise AI is becoming high-stakes – the amount that’s been invested by big tech means that everyone wants to emerge as the backbone o enterprise AI and rewards that come with it.

While high-profile partnerships in AI initially had an air of collaborative resource-pooling. Now, control over how models are accessed and deployed is emerging as a critical battleground.