The UK's Competition and Markets Authority (CMA) has opened an inquiry into whether Microsoft's deepening partnership with leading AI startup OpenAI should be scrutinized as a formal merger situation.
The investigation comes on the heels of recent governance changes at OpenAI that resulted from the brief ousting and subsequent reinstatement of co-founder Sam Altman as CEO. Microsoft has already invested more than $10 billion into OpenAI since 2019 and is their exclusive cloud provider.
As part of its inquiry, the CMA will analyze whether Microsoft now wields material influence, de facto control, or majority voting rights over OpenAI based on their exclusive cloud services contract and other partnership components.
Sorcha O'Carroll, the CMA's Senior Director for Mergers, said "The partnership between Microsoft and OpenAI, including recent developments, represents a close, multi-faceted relationship between two firms with significant activities in FMs and related markets."
She indicated the CMA has been closely tracking partnerships in the AI space that could hamper competition in developing or deploying foundation models. The regulator views sustaining competition between AI developers as critical for continued innovation and responsible practices.
The CMA's interest in this partnership isn't unfounded. Microsoft, a behemoth in the tech industry, and OpenAI, the most advanced AI research lab, represent a powerful combination in a sector already brimming with rapid advancements and fierce competition. The CMA's Invitation to Comment is a proactive step in understanding the implications of this partnership on the competitive landscape of the UK's tech sector.
Both Microsoft and OpenAI now have major operations centered around foundation models - general purpose AI systems that can be adapted to various downstream tasks. OpenAI's chatbot ChatGPT, which sparked viral buzz for its human-like conversational abilities, utilizes a foundation model architecture. Similarly, Microsoft's Copilot is quickly gaining enterprise marketshare. The CMA is also looking to determine if the collaboration has resulted in significant shift in the dynamics of power and influence within the AI market.
If the CMA ultimately rules the partnership a relevant merger situation, a formal investigation would assess the transaction's competitive impact in the UK. The regulator has emphasized the pivotal nature of the AI landscape currently, with the breakneck scaling of the technology across sectors.
Alongside the Microsoft/OpenAI inquiry, the CMA is continuing a broader review into competition and consumer protection issues stemming from foundation models. It plans to publish updated guidance in 2024 on how developers are accessing vital inputs like data through strategic deals.