The Brief – The curious case of ‘partnership’ in the AI landscape

“Partnerships” between big tech firms and AI startups are under the regulatory microscope. The likes of Amazon, Google, and Microsoft have rushed to build strong collaborations with the rising stars of the AI world, such as OpenAI, Mistral AI, and Stability AI.

These partnerships come in many shapes and forms, but they often revolve around the use of each other’s tech stacks. Sometimes, they come with investments from big tech companies into startups, but not always. The UK’s Competition Markets Authority identified 90 of these relationships in a recent report.

Many probably don’t formally fall under current merger rules, which examine company tie-ups based on market turnover and share. For example, if two companies have a combined global turnover of over €5 billion, their transaction will likely be reviewed by the European Commission.

The EU executive has reportedly dropped a merger investigation into Microsoft’s investment and partnership with OpenAI but is still examining an anticompetition angle.

But the UK’s CMA hasn’t given up on the merger angle. This week, it announced an inquiry into an Amazon and Anthropic deal – which saw $4 billion invested in the US startup – as well as into Microsoft’s arrangements with Mistral and Inflection AI.

It is also awaiting responses from OpenAI and Microsoft on their collaboration, after it launched an inquiry in December 2023.

The interesting feature of these partnerships, other than the mystery maintained by somewhat cagey companies, is vertical integration.

Most of them involve some exclusive or “primary” use of a big tech company’s resources for the startup to train their algorithms on.

These resources are crucial to staying ahead in the AI race. Without computing power and troves of data, powerful foundation models, such as the ones built by OpenAI and Anthropic, risk falling behind their competition.

The race for AI ultimately looks a lot like a race for computing and data. So when a big tech firm offers cloud space to an AI startup, it may not be directly investing in it with cash, but is instead granting access to a very important resource.

The problem is, according to some regulators, in this process, the entire AI tech stack is becoming vertically integrated, from the data, to the algorithm, to the hardware, so big term firms might further solidify their control of key inputs.

That presents a new challenge for competition regulators, particularly given how the top tier of the AI market is now packed with such deals.

Partnerships between big tech firms and AI startup. [Screenshot from UK Competition Markets Authority report]

“We have to look carefully at vertical integration and at ecosystems. We have to take account of the impact of AI in how we assess mergers. We even have to think about how AI might lead to new kinds of algorithmic collusion,” the EU’s Executive Vice President  for Competition Margrethe Vestager said in January.

During Vestager’s time in office, the EU has shown a remarkable ambition to innovate in its competition policy.

The Commission blocked a deal between e-commerce websites Booking.com and eTraveli in 2023 based on “ecosystem concerns,” a somewhat novel approach in EU antitrust policy. The Digital Markets Act coined the term “gatekeepers” for big platforms.

The next Commission, which might not include Vestager, will have to continue innovating in the field of AI competition policy.

The Roundup

A Belgian court will hold a hearing on 17 May where it will be decided whether Belgian or EU prosecutors are competent to continue the ‘Pfizergate’ probe involving European Commission boss Ursula von der Leyen, according to a document seen by Euractiv.

A coalition of 15 EU countries is set to demand an increase of “de minimis” state aid for the agricultural sector, according to a note circulated among member states that will be discussed in a ministerial meeting on Monday (29 April).

Greek conservative Prime Minister Kyriakos Mitsotakis (EPP) has once again ruled out any scenario of seeking an EU top job after the European elections in June, saying his only objective is to lead his country.

The EU’s recent spate of investigations into Chinese firms’ state subsidies and procurement practices is not meant to send a message to Beijing but rather shows that the Commission will protect the interests of European businesses, the bloc’s competition chief Margrethe Vestager said on Friday.

“Europe could die,” French President Emmanuel Macron warned in his speech on the future of the EU at Sorbonne University on Thursday (25 April), stressing the importance of an industry ‘Made in Europe’, particularly in sectors like energy and digital.

As cocoa prices surge to record highs and Central and West African growers grapple with the impact of climate change, the cocoa sector is rushing to adapt its production to the EU anti-deforestation regulation (EUDR), which will take effect from January 2025.

The European Commission announced that it had designated Chinese online fashion retailer Shein as a “very large online platform” (VLOP) under the Digital Services Act (DSA) on Friday.

A WHO Europe report into adolescent health and well-being paints an alarming picture of substance use in Europe, with a survey of schools finding that 32% of 15-year-olds had used an e-cigarette and 20% consumed products in the last 30 days.

The EU’s Net-Zero Industry Act (NZIA) will have little impact on Europe’s target to produce more technologies needed for the energy transition, experts told Euractiv, arguing that a new large-scale initiative was necessary after the EU elections.

Despite the presentation of a new compromise text to national governments on Thursday, no serious progress is expected on the revision of the energy taxation directive before the next term of the EU Parliament and Commission.

For more policy news, check out our weekly Tech Brief, Agrifood Brief, and Economy Brief.

Look out for…

• Energy Commissioner Kadri Simson in Saudi Arabia, takes part in World Economic Forum’s Special Meeting on Global Collaboration, Growth and Energy for Development on Sunday.
• Agriculture and Fisheries Council on Monday.
• General Affairs Council on Monday-Tuesday.

Views are the author’s

[Edited by Zoran Radosavljevic/Alice Taylor]