The news: Microsoft’s partnership with OpenAI is becoming competitive.

• Microsoft instructed Azure sales staff to tell prospective customers that OpenAI’s licenses are “great [for] experimentation” but have “limited enterprise-grade capabilities” and fewer “security/privacy features,” per The Information.
• The tactics helped Microsoft gain a new client, software startup Touchcast, that was incentivized by the security and performance promises.
• At the same time, OpenAI hasn’t been prompt about giving Microsoft access to its software for Azure licensing, including with its Whisper model, which it started selling March 1.
• OpenAI’s delay in granting Azure ChatGPT API access allowed it to snatch up customers like Snap and Instacart.

Getting awkward: Microsoft’s billions of dollars’ worth of funding in OpenAI helped propel the startup to stardom, but overlap in customer base isn’t making for an easy collaboration.

• The tech giant’s investment in the startup entails the right to sell OpenAI’s software through its Azure cloud while OpenAI pitches directly to some of the same major enterprise customers under a profit-sharing agreement.
• Microsoft’s generative AI sales approach involves leveraging the market excitement around OpenAI while also emphasizing the startup’s limitations.
• Meanwhile, OpenAI uses Microsoft’s cloud infrastructure rent-free while also giving itself a head start on client sales.

What’s next? While the profit-sharing nature of the agreement would otherwise reduce a rivalry between the two companies, Microsoft’s cloud ambitions could mean changes are ahead.

• Some customers are basing their decision between Microsoft or OpenAI on whether they’re already Azure clients or are signed on with cloud competitors like Google Cloud or Amazon Web Services (AWS).
• With Microsoft eyeing cloud growth as a key strategy for increasing its topline revenue, it may come to view OpenAI’s independence as a barrier to gaining new cloud customers.
• We expect that Microsoft will try to acquire OpenAI. This is likely especially since any reputational protection Microsoft may have gained from keeping the commercial generative AI experiment at a distance is no longer relevant since it’s selling the products directly.

This article originally appeared in Insider Intelligence's Connectivity & Tech Briefing—a daily recap of top stories reshaping the technology industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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