The whirlwind management drama at OpenAI last month ended with co-founder Sam Altman reinstated within a week of his surprise firing — and a much bigger role for Microsoft, which ended up with a board seat for the first time since when he invested billions in the startup earlier this year. This new, more comfortable relationship is now the focus of a new investigation launched today by the Competition and Markets Authority (CMA) in the UK as to whether the two companies are now effectively in a “relatively merged state”.
The first part of the process is today’s CMA announcement of interest and a formal ‘Invitation for Comment’, which is open to both companies and interested third parties. Everyone can provide feedback for the CMA to consider as it considers what steps it can take next, if any.
“The call for comment is the first part of the CMA’s information-gathering process and comes before the start of any phase 1 investigation, which will only happen once the CMA receives the information it needs from the cooperating parties,” said Sorcha O Carroll. , Senior Director of Mergers at CMA, in a statement. An investigation, meanwhile, is going through several stages which could lead to the CMA taking action to disassociate the pair.
“Relational Merger Status” is a specific regulatory term that is an interesting umbrella for a range of relationships. It is intended to account for situations where one company is not definitively purchased or merged with another, but the relationship between the two parties substantially affects competition for the rest of the market.
The CMA notes that “a a number of different types of transactions and arrangements may constitute a relevant merger situation, which may include minority interest and commercial arrangements.
Both, of course, exist in the relationship between Microsoft and OpenAI. Microsoft not only made a massive investment worth billions in OpenAI last year that gives it just under 50% of the business. But the pair are working very closely together to develop a range of AI services, including a number of built-in Microsoft’s Azure cloud platform.
If artificial intelligence was a moving target, it’s one that has very prominently featured both Microsoft and OpenAI as two of the most powerful and accurate darts. OpenAI sets the pace for the creation of LLMs and services built using those LLMs. Microsoft has supported it both financially and operationally. And Microsoft has played a very central role in the last month of turmoil, which appears to have been the latest move to catch the CMA’s attention.
“There have been a number of recent developments in the governance of OpenAI, some of which have involved Microsoft,” he noted today.
Although OpenAI never fully disclosed what led to the ousting of Altman and co-founder Greg Brockman, Microsoft wasted no time offering the pair high-profile jobs at its company, along with jobs for any other OpenAI employees who wanted to leave. the startup in protest. When Altman and Brockman were reinstated, it was a win-win for everyone: Microsoft ended up with a board seat for the first time, yes, as a non-voting observer, but still at the table.
“The speed at which artificial intelligence (AI) is scaling use cases and markets is unmatched in economic history, while advances in robust foundational models (FM) mean this is a pivotal moment in the development of this transformative technology,” the CMA writes. Essentially, the regulator is concerned that in these early days, a handful of companies are making it difficult for competition to build and operate these foundation models. “The partnership between Microsoft and OpenAI (including a multi-year, multibillion-dollar investment, technology development collaboration, and Microsoft’s exclusive provision of cloud services to OpenAI) represents a close, multi-faceted relationship between two companies with significant activities in FM and related markets,” it added.
There are certain other criteria that must be met to be considered part of a relevant merger situation, as defined by the country’s business law. If the CMA pursues this as a full investigation, these points will inevitably arise. They will include questions about whether the two businesses — in this case, in the field of artificial intelligence — are sufficiently different. how much revenue is generated from their relationship (there is a revenue target of £70m); and if it can be argued that they represent more than 25% of the market for the product in question. These are all points that I imagine both sides would argue exist or don’t exist.
One way of thinking here is that regardless of whether this escalates to a full investigation of the Microsoft/OpenAI partnership under the relevant merger rules, it gives the CMA a moment to shine a light on this relationship and the activities of both companies. Since both are so prominent in the field of artificial intelligence, this could in turn serve to provide a tactical basis for considering developments in the future.
“Today’s announcement by the CMA that it is considering whether to investigate the Microsoft/Open AI partnership under its merger control powers is particularly interesting given the wider concerns surrounding the regulation of artificial intelligence,” said Alex Haffner, competition partner at the UK law firm Fladgate. a statement. “In order to proceed with any investigation, the CMA will need to find evidence that the recent fallout from the Sam Altman case has led to meaningful changes in the governance of Open AI and, more specifically, in Microsoft’s influence over its affairs. However, even if it goes no further, by opening a preliminary inquiry the CMA will be able to better understand the range of governance arrangements underpinning the Open AI project and therefore better inform its wider oversight of the rapidly developing field of artificial intelligence. “
