The US Federal Trade Commission (FTC) is making a proactive attempt (for once) to ensure that Big Tech firms aren’t taking advantage of the wild-west nature of the AI market. Specifically, it launched an inquiry into the recent partnerships and investments in generative artificial intelligence (AI) companies made by large tech firms in the cloud space including Amazon, Google, and Microsoft.
The probe aims to understand these relationships better and determine if they enable tech giants to exert inappropriate control or access to this nascent technology in ways that could hurt competition. The move may have been inspired by OpenAI’s bizarre leadership catastrophe in 2023 where its CEO, Sam Altman, was fired, hired by Microsoft, and then rehired by OpenAI in a matter of a few days.
FTC Orders Key Industry Players to Share Details
The FTC sent compulsory orders to AI industry leaders Alphabet (Google), Amazon, Microsoft, OpenAI, and Anthropic requiring them to provide information about their investments and collaboration.
The agency specifically wants details regarding formal agreements, strategic rationales, practical implications of the partnerships, competitive impact analyses, competition dynamics for key AI resources, and related info given to other government entities.
The move comes as companies aggressively pursue strategies to lead in AI. According to the FTC’s Chair Lina Khan, the agency has the duty to protect the market “against tactics that foreclose this opportunity”. She argued that the inquiry will evaluate if these initial moves made by dominant players in the tech realm “risk distorting innovation and undermining fair competition”.
Scrutinizing the Microsoft-OpenAI Partnership and Other Massive Deals
The orders cover three high-profile multi-billion dollar investments:
- Microsoft’s longstanding partnership with OpenAI, maker of ChatGPT.
- Amazon’s investments in Anthropic.
- Google’s investments and cloud services partnership with Anthropic.
These deals have drawn interest from both EU and UK antitrust authorities who expressed their concerns about their implications to the competitive landscape. However, US regulators hadn’t formally scrutinized them before until now.
Microsoft’s relationship with OpenAI has been unusually close, with the tech giant supplying computing power for AI model training while getting exclusive access to resulting technologies.
Microsoft’s CEO, Satya Nadella, has acknowledged that the relationship is somehow “complicated” as it involves both a financial investment and significant cloud computing resources. Many details of the partnership remain undisclosed. However, the excessive price tags that the deal with OpenAI has carried have made the headlines multiple times.
An Overview of the Most Prominent Investments in the AI Sector
In November last year, Microsoft (MSFT) poured $10 billion into OpenAI – the largest investment ever made in an AI company by a single firm. The investment would entitle the Redmond-based firm to three-quarters of OpenAI’s profits until the total amount is fully paid off. After this, Microsoft will own 49% of the AI company.
Last year, Nadella reportedly helped reinstate OpenAI’s CEO Sam Altman when he was briefly ousted by OpenAI’s former Board of Directors during an unexpected coup. Nadella claimed that Microsoft doesn’t control OpenAI. However, the company recently gained one non-voting board seat.
The partnership’s financial opacity and Microsoft’s apparent influence on OpenAI’s governance likely attracted the FTC’s attention.
Meanwhile, Microsoft’s competitors have also made billion-dollar commitments to AI companies. For example, Amazon announced in September last year that it would invest up to $4 billion in OpenAI’s competitor Anthropic in a bid to bolster the firm’s initiatives involving their ChatGPT-like generative AI model called Claude.
Finally, Google has also pledged to invest up to $2 billion in Anthropic and has provided the company, alongside Amazon, with the required cloud infrastructure needed to train its proprietary large language models (LLMs).
Notably absent from the FTC order is Apple, whose investments in the AI realm have also been piling up though it has been much more quiet about it than its rivals. The Cupertino-based firm is aiming to bring in both patented technologies and experts in the AI field that can boost its efforts to incorporate the technology on its flagship devices, namely the iPhone and iPad.
Multiple other large tech companies have been making sizable investments in the AI field, although not all have gone through an acquisition spree to advance their ambitions. Some prominent names that make up this list include Intel Corporation and Salesforce.
What Kind of Information is the FTC Seeking to Gather?
To understand these agreements better, the FTC is seeking further information about:
- Partnership terms and conditions.
- Strategic rationales behind investments.
- Resulting decision-making powers regarding product development, governance, etc.
- Analyses of competitive impact including market share effects.
- Data on competition dynamics for key AI inputs.
- Any information provided to other government entities.
The compulsory orders require sharing confidential details that companies don’t usually disclose publicly. This access will likely improve the FTC’s grasp of the scope and reach of the partnerships, which have drawn heightened scrutiny recently.
Reactions from Big Tech Players
Major inquiries from federal regulators are almost never positive for the companies being investigated. That being said, those being investigated haven’t jumped to criticize the FTC’s move just yet.
Google appears to have welcomed the scrutiny (at least publicly). A spokesperson from the company said: “We hope the FTC’s study will shine a bright light on companies that don’t offer the openness of Google Cloud or have a long history of locking in customers — and who are bringing that same approach to AI services”. This seemed to refer critically to Microsoft and Amazon’s alleged history of anticompetitive tactics.
Microsoft (MSFT) expressed its willingness to cooperate but defended such partnerships as beneficial for “promoting competition and accelerating innovation”.
The rest of the companies involved in the inquiry have not yet made official comments on the matter. To all the parties involved, this may be a wake-up call that their operations are no longer flying under the radar as artificial intelligence continues to attract the attention of the public, large corporations, and regulators.
How Will This Affect the AI Industry?
The recipients have 45 days to respond to the inquiry. The FTC can then better evaluate whether the partnerships merit further intervention on competition grounds. The investigation’s findings may also be used to inform lawmakers and regulators about needed policies that aim to govern the collaborations between tech incumbents and generative AI developers.
With this move, the FTC signals that it’s keeping close tabs on the exploding generative AI sector and won’t hesitate to act against anticompetitive tactics. The investigation comes amidst heightened regulatory pressure worldwide on Big Tech’s growing command of emerging technologies through unchecked consolidation.
Scrutiny will likely intensify given the high barriers to entry and innovation in the computationally-intensive generative AI field. The FTC wants to ensure that market dominance doesn’t inadvertently get reinforced through opaque partnerships.