Two Major AI Unicorns Under Investigation: Recent Scrutiny by Regulatory Authorities Raises Concerns

In March of this year, Microsoft announced a significant investment in the AI startup Inflection, paying around $650 million for software licensing fees. Along with this move, Microsoft hired the co-founder and CEO Mustafa Suleyman, co-founder and Chief Scientist Karén Simonyan, and many employees from Inflection to establish a new division called Microsoft AI. This strategy resembles a "golden cicada shedding its shell," enabling Microsoft to acquire Inflection's core team without traditional merger methods, leaving Inflection largely diminished.

In June, Amazon adopted a similar approach, effectively "hollowing out" the AI startup Adept. Adept provided its technology to Amazon while its co-founders, David Luan and Augustus Odena, along with a portion of its staff, joined Amazon. Luan now leads a new team focused on Artificial General Intelligence (AGI) autonomy that includes many former Adept employees. This trend illustrates how tech giants can swiftly redirect talent and technology without considerable expenditure, raising concerns about the survival of smaller AI startups.

Regulatory bodies are scrutinizing these acquisitions. The U.S. Federal Trade Commission (FTC) is investigating whether Microsoft's restructuring involving Inflection is a way to bypass merger disclosure requirements. Additionally, the FTC is looking into the specifics of Amazon's deal with Adept.

Microsoft's Move to Acquire Inflection Employees Under Investigation

The UK's Competition and Markets Authority (CMA) has initiated a formal investigation into Microsoft's relationship with Inflection. A decision on whether to escalate this investigation will be made by September 11. Inflection, established in March 2022, launched its ChatGPT-like product, Pi, in May 2023, aiming to provide personal services similar to an advanced version of Siri. The company has previously secured over $1.5 billion in funding from notable investors, including LinkedIn co-founder Reid Hoffman, Microsoft co-founder Bill Gates, former Alphabet CEO Eric Schmidt, and Nvidia.

The CMA's inquiry stems from a broader concern about tech giants potentially manipulating emerging markets through substantial investments in AI startups. The CMA has indicated that it may leverage its merger control authority to review such deals, signifying a commitment to ensuring fair competition. Microsoft has contended that talent acquisition fosters competition and should not be deemed a merger.

Amazon’s Acquisition of Adept Executives Under FTC Scrutiny

A knowledgeable source indicates that the FTC has requested further details from Amazon regarding its hiring of executives and researchers from the AI startup Adept. This reflects an increasing unease within the FTC concerning the nature of AI-related transactions. Adept, established in 2022, raised over $400 million from venture capitalists to train large language models for corporate clients but struggled to bring successful commercial products to market.

As Amazon seeks to compete with rivals like Google and Microsoft, it has also made significant investments in AI. Since September last year, Amazon has invested $4 billion in AI startup Anthropic, acquiring minority stakes therein. Earlier this year, the FTC began a broader study into AI investments and collaborations, gathering insights on relationships between tech giants and AI companies.

Conclusion: Antitrust Scrutiny for Silicon Valley Giants

The unconventional strategies employed by Microsoft and Amazon to draw talent from leading AI startups have drawn the attention of regulatory authorities. Furthermore, last week, Microsoft withdrew from its position on OpenAI's board, a move perceived as an attempt to evade heightened regulatory scrutiny. Both U.S. and European regulators have expressed concerns regarding Microsoft's influence over OpenAI. British regulators have yet to decide whether to initiate an investigation into Microsoft’s investment in OpenAI.

Overall, these developments indicate a shifting landscape in the AI sector, with increasing oversight from regulatory bodies aiming to maintain fair competition and market integrity.