NewsUC&C11 Dec 2023 · 4 min read

Microsoft, OpenAI Relationship Probed by UK Competition Regulator

Why it matters: the UK CMA is probing Microsoft and OpenAI over control, governance and merger concerns that could affect AI buying. Published on UC Today.

Kieran Devlin

UK regulator probes Microsoft-OpenAI relationship

The UK's Competition and Markets Authority (CMA) is probing Microsoft and OpenAI's relationship.

The CMA has delivered an Invitation to Comment to both tech companies, which is the first part of the CMA’s information-gathering initial review and is posted prior to the launch of an official phase one investigation. The regulatory body is asking Microsoft, OpenAI, and any other relevant third party, whether "recent developments" have seen the partnership expand into a "relevant merger situation".

The CMA's statement wrote:

There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft. In light of these developments, the CMA is now issuing an ITC to determine whether the Microsoft/OpenAI partnership, including recent developments, has resulted in a relevant merger situation and, if so, the potential impact on competition."

Microsoft has invested roughly $13 billion in OpenAI over the past four years, but the CMA's probe specifically comes off the back of last month's OpenAI saga, in which its CEO Sam Altman was ousted by its board before being reinstated just four days later following intense pressure from both employees and investors.

Over 700 of OpenAI's 770 workers said they would resign unless Altman was allowed to return, while Microsoft, as OpenAI's largest investor, exerted soft pressure on OpenAI's board.

Notably, Microsoft released a statement two days following Altman's sacking that both Altman and his OpenAI Cofounder Greg Brockman had been hired by the Seattle-based tech giant to oversee a new AI research team. The 700-strong group of OpenAI employees said in their open letter to the board that Microsoft had promised them jobs if they followed through on their threat of resigning.

Since Altman's return, Microsoft CEO Satya Nadella has been vocal about the need to improve OpenAI's governance, with an interim board featuring Bret Taylor, Larry Summers, and Adam D’Angelo appointed to ensure the next permanent nine-person board produce better governance for the business.

“We are encouraged by the changes to the OpenAI board,” Nadella said on X. “We believe this is the first essential step on a path to more stable, well-informed, and effective governance. Sam, Greg, and I have talked and agreed they have a key role to play along with the OAI leadership team in ensuring OAI continues to thrive and build on its mission.”

Microsoft has since secured a nonvoting position on OpenAI's board.

As a result of these developments and the manner in which they unfolded, the CMA says it will "review whether the partnership has resulted in an acquisition of control," which the CMA defines as when one party has "material influence, de facto control or more than 50 percent of the voting rights over another entity – or change in the nature of control by one entity over another".

Brad Smith, Microsoft’s Vice Chair and President, defended Microsoft and OpenAI's relationship in response and also called out Google's acquisition of AI company DeepMind in 2014.

"Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition while preserving independence for both companies," Smith said. "The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s Board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK. We will work closely with the CMA to provide all the information it needs."

What Else Has Been Happening With OpenAI Recently?

OpenAI’s Chief Operating Officer Brad Lightcap has warned against expecting too much, too soon, from AI’s ability to transform businesses.

In an interview with CNBC last week, Lightcap was asked about what he considered the most “overhyped” aspect of AI in 2023. He replied that many businesses (perhaps naively) expect AI in its current form can help them cut costs, address significant structural issues or reverse negative growth trends.

“I think the overhyped aspect is that it, in one fell swoop, can deliver substantive business change,” Lightcap said. Lightcap clarified that AI is still in its “infancy” and in a relatively experimental stage of development, so no concrete expectations of its impact as part of business tools or applications should be set.

Meanwhile, Craig Durr, Senior Analyst at Futurum Group, told UC Today that last month's OpenAI saga highlighted issues of governance.

"This is a very unique situation that has a 5013 public entity managing a for-profit business," Durr said. "And the path that took place to allow very quick decisions. If you think about it, the non-profit has a goal that says, ‘We want to make AI safe’, while a for-profit entity has a responsibility to shareholders to make money. You’ve got built-in governance issues from the top of the way this unique thing is organised."

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