Don’t expect competition authorities to wade into the Microsoft-OpenAI power-play — yet
Reading Time: 8 minutesAs the tech world watches Microsoft suck in top execs and AI engineering talent from OpenAI, the generative AI giant in which it already holds a minority stake worth several billion dollars, one question to consider is what, if anything, can competition regulators do about the visible flight of AI expertise and value into Microsoft’s commercial empire?
Efforts by the OpenAI board to reinstate CEO Sam Altman immediately after ejecting him were reported over the weekend to have failed — with Altman opting to join Microsoft, along with president Greg Brockman and several leading AI engineers, as CEO of a new AI research division it’s spinning up. Which suggests the back-up plan is to recreate OpenAI in-house at Microsoft.
At the time of writing a mass exodus of OpenAI staff to Microsoft also looks entirely possible — with hundreds of staffers signing a letter saying they ‘may’ quit unless the startup’s board resigns and reappoints Altman and Brockman, along with two new independent directors.
So either OpenAI reboots to reset the current chaos, with Microsoft’s man Altman back in charge (and more powerful than ever). Or OpenAI risks losing the majority of its human talent, if they make good on an ‘imminent’ threat to flee into Microsoft’s (very open-for-AI) arms (‘Microsoft has assured us that there are positions for all OpenAI employees at this new subsidiary should we choose to join,’ the OpenAI staffers disclose in their letter.)
For its part Microsoft’s leadership has sought to project ‘business as usual’ messaging during these seismic upheavals at its strategic AI partner. ‘We remain committed to our partnership with OpenAI and have confidence in our product roadmap,’ wrote CEO Satya Nadella in the same post on X where he announced bringing Altman et al into the fold. (Talk about efficient tweeting amid the chaos!).
‘We look forward to getting to know Emmett Shear and OAI’s new leadership team and working with them,’ he went on, tone set to ‘smooth operator’.
The Microsoft CEO’s carefully constructed public lines look intended for both Microsoft investors and any watchful competition regulators. For investors Nadella’s message is essentially ‘keep calm, we’re carrying on’. For regulators it sounds more like: ‘Keep calm, there’s nothing to see here’ — or, ‘we’re still an OpenAI ‘partner’ and we’re still working with them; we’re definitely not in control of the whole AI shebang honest!’.
This fits with Microsoft’s calculated approach regarding its dalliance with OpenAI up to now — making a number of large-scale investments in the AI partner over a number of years but, reportedly, not exceeding a 49% stake in OpenAI. (Note it’s also not making a public push for a board seat, despite some reports over the weekend claiming it was considering this ask.)
By the numbers Microsoft remains a minority investor — which has likely helped the tech giant fly under M&A regulators’ radars and avoid triggering transaction notifications thresholds that could have led to formal competition reviews (and, via that scrutiny, to controls being applied on how it can operate the generative AI strategy which Nadella has, over recent months, been betting the farm on).
But, well, what’s going on with OpenAI and Microsoft right now other than an M&A in all but name?
Microsoft is no stranger to having merger controls applied. (Indeed, there are rumors it’s been taking expert advice from some high profile regulators vis-a-vis its investment in OpenAI. But the company didn’t respond to our questions on the topic.)
Just recently it skiied past a challenge from UK competition authorities who sought to block its $68.7B gaming megamerger with Activision — circumventing a hard stop on that transaction by proposing to restructure the deal to divest most of Activision’s cloud-streaming rights to a rival (Ubisoft), which flipped the UK CMA’s initial red light to green for game on.
There’s no doubt Microsoft would have preferred not to have to give such a concession. But better a remedy than a hard stop, from its PoV. It also agreed to conditions in the EU to get the deal past the bloc’s antitrust regulators.
Even with remedies (rather than blocks) the merger controls process is a powerful check on tech firms’ ambitions — when triggered. So avoiding triggering formal merger review is the optimal outcome. And this appears to be where the fast developing (and still very fluid situation) with Microsoft and OpenAI is playing out. In spite of this emergent ‘advanced AI’ market having just a handful of big league players (such as Microsoft), on account of the high compute costs involved with training models on the vast amounts of data also demanded to make generative AIs fly.
In other words, there’s already a clear risk of AI monopolies being established and entrenched — but where are the competition regulators and why aren’t they all over this?
‘I don’t see a route through which a regulator can actually pull this in,’ said Cristina Caffarra, a leading competition economist and honorary professor at University College London, discussing whether the unfolding situation around Microsoft and OpenAI could trigger attention from antitrust regulators. ‘It’s fundamentally the retention of a senior executive or two… You’re not buying a going concern or an asset. I think that the opportunities for regulators to formally look into it are very limited.’
Though Caffarra also noted that if — as was being rumored over the weekend — Microsoft were to take a seat on OpenAI’s board that would constitute a ‘change of control’ that could trigger fresh scrutiny.
‘If anything changes in the control provision then I think the regulators will start calling it in,’ she suggested, adding: ‘I think that they’ll be incredibly careful to make sure that — if they possibly can — they change nothing in the position of control.’
Microsoft’s market power in cloud computing obviously feeds its ability to carve out a lead at this cutting edge of AI via its ability to serve up training infrastructure (indeed, some of its investment in OpenAI reportedly took the form of cloud credits). While market power in one sector being used to extend dominance into a new area is something competition regulators tend to worry about. But these authorities have to work with existing tools and rules.
To wit: Earlier this month Germany’s Federal Cartel Office (FCO) concluded that Microsoft’s ‘cooperation’ with the AI firm is ‘currently’ not subject to merger control in that market — a conclusion reached before the current OpenAI board ructions and staff fluctuations (if we can put it like that).
‘We thoroughly examined the possibility of the companies having to notify Microsoft’s involvement in OpenAI. However, we have concluded that the previous investments and the cooperation between the two companies are not subject to merger control,’ wrote Andreas Mundt, president of the FCO (aka Bundeskartellamt), in a November 15 press release, concluding it could not step in to review potential competition concerns as yet.
The FCO did determine, in a first test, that the link between Microsoft and OpenAI ‘constituted a concentration as defined by law’. But on examining whether Microsoft’s involvement with OpenAI gave rise to a merger notification obligation (‘based on the so-called transaction value threshold (Section 35(1a) of the German Competition Act (GWB)) due to the amount of the investment made in OpenAI and whether OpenAI‘s activities in Germany were substantial’), it decided OpenAI‘s activities in Germany ‘were not substantial until 2023’. On reviewing ‘the contractual and economic terms of the cooperation between Microsoft and OpenAI had developed in the recent past’ the FCO also found ‘it could not be assumed that the existing link relevant to competition had deepened’ — hence its final conclusion that no merger notification obligation arose from that earlier love-in between Nadella and Altman.
However the FCO president was careful to warn the situation could change ‘if Microsoft were to increase its influence on OpenAI in the future’ — with the authority saying such a change would demand it ‘re-examine whether the companies are subject to notification under merger control’.
So, tl;dr, the German watchdog’s message as it laid back down just a few weeks ago was note of warning it would remain watchful for fresh developments. (And boy do we have those going on right now!)
The FCO does already have an ongoing review process on Microsoft assessing its market power to consider whether it’s of so called ‘paramount significance across markets’. This is the bar set for Germany’s ex ante reboot of its digital competition law, back in 2021. A number of tech giants have already been so designated by the FCO, unlocking a more proactive set of tools it can use to address suspected competition concerns at a faster clip than under classical competition law enforcement. (A couple of recent examples of the power of the regime to change how Big Tech operates include Google and Meta changing some of their data terms as a result of Bundeskartellamt interventions).
But unless and until Microsoft gets the paramount significance designation the FCO is left to work with its traditional set of competition intervention tools. And — for now, at least — those tools aren’t able to respond to headcount moves, however senior (or major).
Beyond Germany, the European Union recently passed its own ex ante competition law: Aka the Digital Markets Act (DMA). And, earlier this year, the EU designated Microsoft as one of a handful of so called ‘gatekeepers’ under the DMA — with its Windows OS deemed a ‘core platform service’, under the law — triggering a series of up-front obligations on how Microsoft can operate the OS, such as interoperability requirements with regard to business users in areas like virtual assistant tech (hi AI!).
Thing is, the EU hasn’t designated any cloud services as subject to the DMA yet. And obligations baked into the law draw heavily on past competition concerns and cases brought by the bloc — Caffarra refers to it as ‘effectively a compendium; a synopsis’ of what’s come before — meaning that despite being described as ex ante law it’s still retrospective in spirit. Meaning it’s not looking ahead at how changing technologies might reshape competition problems.
Experts we talked to weren’t hopeful the DMA will keep pace with developments. Or that the Commission even has appetite to wade into the corporate power play unfolding in public view.
‘It does not change the influence of Microsoft over OpenAI (if anything, now Open AI is worth less with the departure of key staff). But it increases the conflict of interest since Microsoft is now a direct AI competitor,’ suggested Tommaso Valletti, a professor of Economics at Imperial College Business School who, between September 2016 and August 2019, was also Chief Competition Economist of the European Commission’s Directorate General for Competition.
‘For sure it’s in [the Commission’s] powers [to intervene on Microsoft’s use of OpenAI technology under DMA powers in relation to Windows] — nothing to do with Altman directly though,’ he also told us, before predicting: ‘I don’t think they have an appetite for this.’
Sure, DMA gatekeeper status obligations on Windows may check Microsoft’s ability to spin entrenched relationships with AI kingpins into locked down AI defaults in its own desktop OS. But, respectfully, Nadella’s (and Altman’s) play for global dominance through AI looks a heckuva a lot bigger than that…
‘Will it do something? Yes, at the margin,’ Caffarra predicted of the DMA’s power to rein in Big Tech’s appetite to keep cranking up its market power. ‘Yes, it will force Apple to just adopt a new protocol whereby I can have my blue messages together with the green messages and the world will be a better place — okay. Will it actually disperse the power? The power that allows somebody to make a deal overnight with the biggest hot property in the world and say I will pay you a billion, you personally, to come to me and disrupt this entire new technology… And that — that the DMA can’t touch.’
‘My advice, in all of this, is that I think it is essential that regulators develop a pair of cojones and started looking into these deals,’ she added, returning to the prospect of ever tighter conjointment between Microsoft-OpenAI. ‘And calling them in even though they are designed to fly under the radar.’
Reference: https://techcrunch.com/2023/11/20/microsoft-openai-competition-concerns/
Ref: techcrunch
MediaDownloader.net -> Free Online Video Downloader, Download Any Video From YouTube, VK, Vimeo, Twitter, Twitch, Tumblr, Tiktok, Telegram, TED, Streamable, Soundcloud, Snapchat, Share, Rumble, Reddit, PuhuTV, Pinterest, Periscope, Ok.ru, MxTakatak, Mixcloud, Mashable, LinkedIn, Likee, Kwai, Izlesene, Instagram, Imgur, IMDB, Ifunny, Gaana, Flickr, Febspot, Facebook, ESPN, Douyin, Dailymotion, Buzzfeed, BluTV, Blogger, Bitchute, Bilibili, Bandcamp, Akıllı, 9GAG