Trustbusters have substantial tech in their sights. On March 25, the European Commission launched an investigation into Apple, Alphabet (Google’s parent company) and Meta (owned by Facebook). Regulators in Brussels believe that measures introduced by US tech giants to ensure compliance with the Digital Markets Act – a sweeping novel law aimed at ensuring fair competition in the EU tech industry – are not adequate.
A few days earlier, the U.S. Department of Justice, along with attorneys general from 16 states, sued Apple in what may be the most ambitious case brought against American technology since the Justice Department fought Microsoft a quarter-century ago. It alleges that the iPhone maker is using its monopoly position in the smartphone market to “hinder” innovation, “stifle” competition and discourage users from buying competing devices. Apple denies wrongdoing.
All this analysis is seemingly backward-looking; the cases concern existing products and business models of tech giants. But the phenomenon is growing as companies look to capitalize on the next wave of technological disruption — ChatGPT-style “generative” artificial intelligence (AI). The way tech titans approach this challenge is also changing.
During previous waves of technological change, immense companies often bought early-stage innovators to stay ahead. In another lawsuit, the Federal Trade Commission (FTC), the main U.S. antitrust agency, accuses Meta of stifling social media competition by, among other things, buying Instagram and WhatsApp, two upstart rivals. Regardless of whether the FTC takes the case to court and forces Meta to divest one or both of its apps, any similar deal would be a no-go for regulators in America and Europe today.
As acquisitions become increasingly tough, tech giants have instead begun investing piecemeal in promising startups. In 2023, about two-thirds of the $27 billion raised by smaller AI companies came from Alphabet, Amazon and Microsoft, according to research firm PitchBook. This includes Microsoft’s $10 billion investment in OpenAI, the creator of ChatGPT and the hottest AI startup in the world, and Google’s $2 billion stake in Anthropic, another creator of clever “substantial language models.” The giants are spreading these smaller bets: Microsoft has backed a different model -makers like Mistral, a long-established French company trying to give OpenAI a run for its money (startups are also diversifying their funding: beyond Google’s investment, Anthropic could get up to $4 billion from Amazon ).
Such transactions often involve conditions other than joining the list of shareholders of the startup. They often give the investor access to the smaller company’s technology, sometimes exclusively. Microsoft regrets to emphasize that its investments in OpenAI and Mistral do not involve taking up shares in the share capital (although it does not want to reveal what exactly they involve).
Some AI deals may involve agreements between the behemoths themselves. Apple and Alphabet are reportedly discussing a solution that could see some iPhone features powered by Gemini, the search giant’s generative artificial intelligence.
Another approach is to poach star entrepreneurs and AI technologists. Since early 2022, Alphabet, Amazon, Apple, Meta and Microsoft have collectively hired around 30 artificial intelligence experts from Canadian model maker OpenAI, Anthropic and Cohere, according to research firm Live Data Technologies. On March 19, Microsoft announced it would hire almost the entire workforce of Inflection AI, another cutting-edge modeler, including its co-founder Mustafa Suleyman. (Mr. Sulejman sits on the board “Economist”. Parent company.)
Trustbusters are not blind to these changes. Regulators on both sides of the Atlantic are already investigating some of the recent mergers that have not resulted in full takeovers. The rumored Apple has signed a Gemini deal with Google is modeled on a similar deal that makes Google the default search engine on Apple devices, and is already the subject of another antitrust case brought by the Department of Justice against Google. It’s probably only a matter of time before they start looking into the AI hiring practices of substantial tech companies.
The giants may hope that by the time these antitrust actions continue, let alone resolve, they will corner the AI market – just as they have with today’s digital businesses. You can ask for forgiveness later, even if it means multiple trips to the courtroom.
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