CMA launches probe into Microsoft's hiring spree from Inflection AI
When is an acquisition not an aquisition?
The Competition and Markets Authority (CMA) has launched a formal investigation into Microsoft's recruitment of staff from AI startup Inflection to determine if this constitutes a de facto merger, potentially stifling competition in the AI sector.
The move comes after the CMA gathered "sufficient information" regarding Microsoft's hiring and "associated arrangements" with the startup.
"The Competition and Markets Authority (CMA) is considering whether it is or may be the case that Microsoft Corporation's hiring of certain former employees of Inflection and its entry into associated arrangements with Inflection has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services," the CMA said.
This follows an initial inquiry launched in April, reflecting broader concerns about dealmaking within the rapidly evolving AI landscape.
The CMA has set a deadline of 11th September to decide if the probe will result into a more in-depth "Phase 2" investigation.
Microsoft maintains its position that talent acquisition fosters competition and refutes any claims of the Inflection deal constituting a merger. The company has pledged full cooperation with the CMA's inquiries.
The story goes beyond a simple hiring spree. Last year, Microsoft participated in a $1.3 billion funding round for Inflection. In March, they hired Mustafa Suleyman, Inflection's co-founder, along with several other key personnel, for a reported $650 million. Additionally, Microsoft acquired a license to use Inflection's technology.
Inflection, initially founded in 2022 as a consumer AI company, has undergone a major shift since the Microsoft deal. With a significant portion of its workforce joining Microsoft, Inflection has now turned towards selling enterprise AI software to businesses. The move raised eyebrows among regulators and legal experts, as it resembled an acquisition by Microsoft but bypassed formal acquisition regulations.
In April, the CMA sought public opinion on whether partnerships like this, including Microsoft's deal with Inflection, fell under UK merger control rules.
Both Microsoft and Inflection highlighted the agreement's nature as a non-acquisition partnership, with Inflection remaining an independent entity.
Big Tech's AI acquisitions and partnerships are under intense scrutiny across the globe. The European Commission is currently exploring the possibility of an antitrust investigation into Microsoft's OpenAI ties.
Microsoft's has poured over $13 billion into OpenAI, leveraging its large language models for products like Copilot and Bing. Earlier this month, Microsoft relinquished its observer seat on the OpenAI board, followed by Apple declining a similar position.
The CMA is also investigating Amazon's partnership with Anthropic, another prominent AI startup, to determine if it constitutes a merger. Amazon has invested $4 billion in Anthropic, and offers the startup's AI models through its own cloud service, Amazon Bedrock.
In April, the CMA raised concerns about competition in the AI Foundation Models (FMs) market.
During a speech in Washington DC, CMA CEO Sarah Cardell highlighted the transformative potential of FMs, describing them as a possible "paradigm shift" for societies and economies. However, she also pointed out the increasing dominance of a select group of tech giants, including Google, Apple, Microsoft, Meta, Amazon (aka GAMMA) and Nvidia in this field.