June 16, 2024

The Competition and Markets Authority (CMA) is gathering information on Microsoft and OpenAI to decide whether their partnership threatens competition in the UK, which is home to Google’s DeepMind.

On Friday (Dec. 8), the CMA said it’s seeking comment from interested parties, giving Microsoft, OpenAI, and others an opportunity to weigh in. That move could lead to a formal antitrust investigation by the British agency.

The fast-moving generative AI industry is increasingly catching the attention of regulators globally. US tech giants Amazon, Google, and Meta have made a flurry of deals with AI startups this year, with the goal of quickly building and launching AI products.

M&A has proven difficult given greater antitrust scrutiny, so these companies find ways to work with startups rather than buy them outright, Brendan Burke, an analyst at PitchBook, previously told Quartz.

OpenAI, the maker of ChatGPT, has propelled Microsoft to a leading role in the AI space. The tech titan has announced products like the revamped Bing with AI and Copilot, an AI assistant, ahead of its peers. The company’s stock is up 54% this year.

OpenAI’s recent mutiny put a spotlight on the ties between OpenAI and Microsoft

The CMA’s investigation comes just a few weeks after OpenAI had a blip of uncertainty when CEO Sam Altman was ousted, only to return in a matter of days. Though it may be back to business as usual for the AI startup, those recent events have put a spotlight on its relationship with Microsoft.

During Altman’s brief absence, Microsoft CEO Satya Nadella reassured him and OpenAI employees, many of whom had threatened to leave unless Altman was reinstalled, that they would have jobs at Microsoft.

Microsoft has invested at least $10 billion for a 49% stake in OpenAI, according to reports. “Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions,” Frank Shaw, Microsoft’s chief communications officer, said in a statement to Quartz.

Part of the deal between Microsoft and OpenAI is that the former is the startup’s exclusive cloud services provider. OpenAI told CNBC that after its investment is paid back, Microsoft will receive a percentage of OpenAI’s profits up to the cap both parties agreed on, with the rest flowing to the nonprofit body of OpenAI.

OpenAI's org structure.

OpenAI’s unusual corporate structure.
Screenshot: Courtesy of company

The dramatic turn of events at OpenAI has also led to a new board, consisting of Bret Taylor, the former CEO of Salesforce, Larry Sumners, the former US Treasury secretary, and Quora CEO Adam D’Angelo, the sole director to stay on. More members are expected to join. OpenAI’s new board also includes Microsoft as a non-voting observer.

After the CMA’s announcement, Brad Smith, Microsoft’s president, was quick to comment on the distinction between both partners—and to note how his company’s investment in OpenAI differs from Google’s purchase of DeepMind in the UK in 2014. While Microsoft has invested tens of billions in OpenAI, Google bought DeepMind, reportedly for more than $500 million.

“Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies,” Smith said on X on Friday evening. “The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s Board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK. We will work closely with the CMA to provide all the information it needs.”

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