After closed door OpenAI drama, open source AI backed by Nvidia, Eric Schmidt, could emerge winner

The Hugging Face website on a laptop arranged in New York, US, on Thursday, Aug. 17, 2023. Nvidia announced a partnership with Hugging Face, a popular developer of AI models and data sets, that will add a training service to its website that uses Nvidia DGX Cloud, allowing users to tap the chipmaker's servers to handle their workloads. Photographer: Gabby Jones/Bloomberg via

Tech giants Salesforce , Qualcomm , Nvidia and high-profile investor Eric Schmidt are pouring investment into open source AI startups that could be winners as the recent OpenAI saga — although now resolved with Sam Altman reinstated as CEO and a new board being composed with the approval of major OpenAI backer Microsoft — has shaken up the market and caused a reassessment of relying on a single, proprietary service for generative AI and concerns about concentration of AI development of a handful of big tech players.

As public market tech giants jockey for leading positions in advanced AI, well-funded open source startups are eyeing expansion as competition intensifies and more enterprises consider adding open models and providers to their generative AI push. "The drama over OpenAI reinforces the need for open source or community models outside a single company," said Mike Gualtieri, vice president and principal analyst at market research firm Forrester.

OpenAI staff threats to quit , and worries about the startup's ability to continue to function and support the hundreds of startups that had rushed into its ecosystem, highlighted how quickly a competitive landscape can shift, and in unexpected ways. In addition to an offer from Microsoft to join at current compensation, Salesforce CEO and co-founder Marc Benioff offered jobs to any OpenAI talent thinking of departing the company.

"What we want to avoid is only one game in town, a large monopoly operating behind closed doors. This OpenAI saga demonstrates that the ecosystem is too fragile to rely on a single company for its AI needs," said Delip Rao, an AI research scientist and academic who has worked at Twitter and Google. "We should encourage all companies to build on disruption-proof AI technology that only open source can offer."

To be clear, big bets made on open source AI pre-date last Friday when news first broke of Sam Altman's removal as OpenAI CEO, and those bets include an open source AI model controlled by one dominant tech company , Meta Platforms ' Llama.

Salesforce-invested Hugging Face , named after the popular smiley emoji with a matching logo, is gearing up after a $235 million venture deal at a $4.5 billion valuation in August. The French-American open source AI company has raised a total $400 million from a broad array of 30 tech investors including Qualcomm, IBM , Google , Nvidia, Intel and Sequoia Capital.

"We are not following the Silicon Valley playbook," said Thomas Wolf, co-founder and CEO of Hugging Face, a central hub connecting developers and researchers to share code and build AI tools together, in an interview that was conducted before the recent OpenAI shakeup. "AI builders are growing superfast, raising and burning money. We are not in that mindset. We've been around for seven years, and didn't need to raise money. We can make plans for the long run without a problem."

Wolf stressed his firm's contrast to enterprise-controlled and owned software models. "We are unlocking the community to develop AI, to share and build together," he said. And in a subsequent interview after the OpenAI power struggle began, he referenced the Linux open operating system, a widely used rival to Microsoft's Windows, which he said was never at risk of disappearing because Linus Torvalds (its creator) changed jobs.

Hugging Face has 160 employees and turned cash flow positive early last year, he said, and may make an acquisition after buying machine learning startup Gradio in 2021. "I don't see the market consolidating. Instead, it will fan out."

This past June, Salesforce Ventures, the company's investment arm, doubled its generative AI fund to $500 million.

"We are excited about innovations in generative AI in an open way, so researchers and developers can collaborate," said Paul Drews, managing partner at Salesforce Ventures. Competitive leverage is top of mind. "Salesforce could partner with Hugging Face in the future and is in the early days of exploring collaboration," he said.

Open source and AI governance

Former Google CEO Eric Schmidt is behind Mistral AI, another open source rival to OpenAI's ChatGPT. Founded in France by alums of Alphabet 's Deep Mind and Meta, the startup launched in May and within four weeks, picked up $113 million from Lightspeed Venture Partners with other Silicon Valley heavyweights, and several French investors. Mistral AI is raising more funding, reportedly at least $400 million at a $1 billion valuation.

"Open-source development is the only validated way of making software collaboratively, and AI is no different. Governance matters," said Arthur Mensch, CEO and co-founder Mistral AI, in an interview after the OpenAI news. This November, Microsoft began offering the startup's service on its Azure cloud computing platform.

A third open source AI startup, Poolside AI, recently pulled in $126 million co-led by French telecom and internet billionaire Xavier Niel and U.S. VC firm Felicis Ventures.