An open source AI backed by Nvidia, Eric Schmidt, could emerge victorious after the closed door OpenAI drama.

• Open source AI startups such as Hugging Face and Mistral AI are receiving investment from Salesforce, Qualcomm, Nvidia, and former Google CEO Eric Schmidt.
• The OpenAI saga has ended with Sam Altman being reinstated as CEO and a new board, but it has caused a reevaluation of relying on a single, proprietary service for generative AI competitive advantage.
• Over 2 million users, 400,000 models, and 77,000 data sets are part of the Hugging Face community, which includes IBM and AWS as customers.

Tech giants, including Google, Microsoft, and high-profile investor Eric Schmidt, are investing in open source AI startups that could be successful as the recent OpenAI saga has caused a reevaluation of relying on a single, proprietary service for generative AI and concerns about the concentration of AI development among a few big tech companies.

As public market tech giants vie for dominance in advanced AI, well-funded open source startups are looking to expand their reach as competition intensifies and more enterprises consider incorporating open models and providers into their generative AI initiatives. According to Mike Gualtieri, vice president and principal analyst at market research firm Forrester, the drama surrounding OpenAI highlights the need for open source or community models that exist outside of a single company.

OpenAI staff members are considering quitting due to concerns about the startup's ability to sustain its ecosystem and support the numerous startups that have joined it. The sudden shift in the competitive landscape has been highlighted by this development. In addition to an offer from Microsoft to join at their current compensation, Salesforce CEO Marc Benioff has extended job offers to any OpenAI talent considering leaving the company.

We must prevent the dominance of a single game in the market, which is a large monopoly operating in secrecy. The OpenAI saga highlights the fragility of the ecosystem and the need for companies to develop AI technology that is resistant to disruption. As an AI research scientist and academic who has worked at Twitter and Google, Delip Rao emphasizes the importance of promoting open source AI technology to ensure the sustainability of the industry.

The removal of Sam Altman as OpenAI CEO on last Friday did not affect the big bets made on open source AI pre-date that event, including an open source AI model controlled by one dominant tech company, Llama.

Hugging Face, a French-American open source AI company, has secured $235 million in funding from Salesforce and other investors, including Qualcomm, Microsoft, Nvidia, and Sequoia Capital, at a valuation of $4.5 billion in August. The company, known for its popular smiley emoji logo, has raised a total of $400 million from 30 tech investors.

Thomas Wolf, co-founder and CEO of Hugging Face, stated in an interview before the recent OpenAI shakeup that they are not following the Silicon Valley playbook. Instead, they are focused on building AI tools together with developers and researchers, without the need to raise money. Hugging Face has been around for seven years and has a long-term perspective.

Wolf emphasized the distinction between his company's software model and enterprise-owned and controlled models. He stated, "We are empowering the community to develop AI, collaborate and create together." In a subsequent interview following the OpenAI power struggle, he referenced the Linux open operating system, which he said was never at risk of disappearing because Linus Torvalds, its creator, changed jobs.

Hugging Face, with 160 employees, achieved cash flow positivity early last year and may make an acquisition after acquiring Gradio in 2021. "I believe the market will not consolidate but rather expand," he stated.

In June, Salesforce Ventures increased its generative AI fund to $500 million.

Salesforce Ventures' managing partner, Paul Drews, stated that they are excited about generative AI innovations and are open to collaboration with researchers and developers. However, competitive leverage is a top priority, and Salesforce could potentially partner with Hugging Face in the future.

Open source and AI governance

Eric Schmidt, the former CEO of Google, is the founder of Mistral AI, an open source rival to OpenAI's ChatGPT. The startup was launched in May and raised $113 million in funding from Lightspeed Venture Partners and other Silicon Valley heavyweights, as well as several French investors. Mistral AI is currently seeking to raise more funding, with a reported valuation of at least $1 billion.

"Collaborative software development through open-source methods is the only proven approach, and this applies to AI as well. Governance is crucial," stated Arthur Mensch, CEO and co-founder of Mistral AI, following the OpenAI news. In November, Microsoft made the startup's service available on its Azure cloud platform.

Poolside AI, a third open source AI startup, secured $126 million in funding co-led by French billionaire Xavier Niel and U.S. VC firm Felicis Ventures.

In Europe, three of the top AI startup funding deals occurred in France, which is working to become a global leader in AI with a coordinated government-industry push. Schmidt is overseeing the creation of a Silicon Valley-style hub for AI research and innovation in the country.

In November, Kai-Fu Lee, an AI investor and former Google president, launched his own competitor, 01.AI, funded by his firm Sinovation Ventures and Elon Musk is currently testing his OpenAI rival, xAI, which can access data on X.

Hugging Face started as a chatbot and later shifted its focus to natural language processing (NLP) models. It then developed an open-source platform for data science and machine learning. Today, Hugging Face has over 2 million users, 400,000 models, and 77,000 data sets. Most of its services are free, with paid projects generating revenue (undisclosed). IBM and AWS are among its clients, using its tools to integrate into their offerings for customers. According to Quinn Li, senior vice president and global head at Qualcomm Ventures, collaborating with Hugging Face can speed up innovation and the development of on-device AI applications.

AI is transforming the world, and we are only at the beginning of what it can accomplish, as demonstrated by its ability to generate music, text, images, and possibly film, according to Wolf. The scope of Gen AI is being covered.

Risks and opportunities in open source AI models

Bill Gurley of Benchmark, along with 17 investors and founders, wrote a letter to President Biden about the AI Executive Order's potential to limit open source. They emphasized the importance of open source AI in promoting innovation, competition, and equal access to technology. They highlighted how this collaborative approach was key to the success of the Internet.

Steve Case, chairman and CEO of Revolution and AOL co-founder, stated in an op-ed for CNBC that open source enables developers to collaborate and share knowledge, leading to faster innovation. He also emphasized that open source AI allows startups to compete with big tech companies and levels the playing field by providing all companies and developers with equal access to tools.

Open source models are considered a fast, transparent, and accountable way to innovate, but they can also be viewed as less safe because the source code is public, which may attract malicious actors. While open source can reduce some fears by providing transparency and increasing trust and confidence, it cannot eliminate all risks, especially those related to AI.

Gualtieri, a Forrester analyst, posed the question: "Can startups maintain neutrality in developing open source technology for the community if they receive significant investment from technology giants?"

It is challenging to maintain neutrality when accepting funding from strategic investors such as Salesforce and Nvidia.

Thomas Malone, a MIT professor and author of "Superminds," stated that the OpenAI drama highlights the conflict between the influence of communities, such as concerns about AI safety, and the influence of markets, such as the drive to increase profits. He noted that both startups and big tech companies can benefit from the generative AI market, but overconfidence has never been a successful strategy during periods of technological innovation. According to Malone, in the history of technology, it is challenging for dominant players to maintain their dominance.