Competition … What Competition?

The prize is AI and in the battle for supremacy "Big Tech" aren't playing fair with the regulators.

In 1911, the US Supreme Court ruled that Standard Oil – then the largest oil producer in the world – was an illegal monopoly.

It was a landmark decision that resulted in the dissolution of Standard Oil into 34 smaller companies. It also made John D. Rockefeller the richest person in modern history and laid the foundation for modern antitrust authority in the United States, serving as a blueprint for the rest of the world.

Now, trustbusters exist in every developed nation. Their raison d’être is to protect consumers by punishing cartels, policing mergers, and dealing with dominant firms that abuse their positions. In America, it’s the Federal Trade Commission (FTC) and the Department of Justice (DOJ). In Europe, it’s the European Commission and national regulators (i.e., Germany’s Bundeskartellamt), and in the UK, it’s the Competition and Markets Authority (CMA).

113 years after Standard Oil, there’s a new titan for regulators to contend with: “Big Tech.” But this time, it’s not about oil; it’s about AI, and the tech giants are tearing up the rulebook.

For years, “Big Tech” has stayed one step ahead of the competition authorities. This dynamic has been characterised by a cycle of innovation and adaptation, where the tech giants continuously push the boundaries of technology, data usage, and market expansion, while regulators scramble to understand these advancements and craft appropriate responses.

The complexity and rapid evolution of technology pose significant challenges for regulation. While the world advances, the watchdogs are anchored in the past. Much of the body of law applies to old industries and must be adapted to present circumstances. Prosecutors are struggling to fit the modern world into the doctrines of old law.

The tech giants have exploited these regulatory gaps and ambiguities and mastered the art of stalling and obfuscation. By the time regulators catch up to one issue, new technologies and business models have already changed the landscape, starting the cycle anew.

Moreover, “Big Tech” has amassed significant resources and influence, which they can deploy to shape regulatory environments to their advantage. Through lobbying, legal challenges, and public relations campaigns, these companies influence policy and public opinion, further complicating regulatory efforts.

But the real shenanigans have only just begun – as the tech giants desperately rush to secure AI market dominance – all kinds of extraordinary manoeuvres are starting to take shape.

Last month, the Competition and Markets Authority shared concerns that established companies are taking advantage of AI companies’ insatiable need for computing power to train large language models by luring cash-strapped startups to their cloud services in exchange for a stake that could give them outsized influence.

This is exactly what is happening, and as per usual, the regulators are just a little slow to catch on. Six months ago, I wrote about the concept of ‘round tripping’ and a startup called CloudWeave – and how they were using Nvidia’s much-sought-after H100 AI GPUs as collateral to raise debt to buy even more GPUs from (you guessed it) Nvidia …

And then there’s Amazon putting $1.25 billion into AI startup Anthropic in exchange for a minority stake, and certain tit-for-tat agreements (like the company continuing to use AWS for its extensive computation needs). A few months later, Amazon ponied up another $2.75 billion on the understanding that Anthropic would build its AI using specialised computer chips designed by (you guessed it) Amazon …

While everyone is playing checkers, Microsoft is playing chess. Their machiavellian genius was first evident back in November ‘23 when OpenAI shocked the tech industry with the surprise ousting of its CEO – Sam Altman.

Four days later, the decision was reversed. Microsoft had used its considerable leverage – including some of the $13 billion it had pledged but not handed over – to pressure the board of OpenAI to reverse the firing of its CEO, get him reinstated, and then appoint an almost entirely refreshed board with Microsoft as a member (albeit one without a formal vote).

Despite their 49% stake, a board seat, and obvious executive power, Microsoft apparently neither owns nor controls OpenAI. Instead, they take great pains to talk about their investment and “partnership”. It’s what you might call “heavily lawyered” – that is to say, carefully constructed to avoid looking like a buyout. But when the chips were down for Sam Altman, in the end, Microsoft was holding all the cards – not OpenAI’s board.

In June ‘23, Inflection – a much-vaunted AI startup co-founded by Reid HoffmannMustafa Suleyman, and Karén Simonyan – announced it had raised $1.3 billion to build what it called “more personal AI.” The lead investor was Microsoft.

Less than a year later and out of the blue, Microsoft announced that it was absconding with the co-founders of Inflection, much of the staff, and the rights to use the tech. Apparently, it paid $620 million for non-exclusive licensing fees for the technology and $30 million for Inflection to agree not to sue over Microsoft’s poaching.

I’m sure it was an impossibly enticing offer for Mustafa, Karen et al. No doubt compensation packages featured salaries and stock in the tens of millions, all of the compute they could possibly want, and the opportunity to work alongside some of the brightest minds in AI. It’s a talent snatch without the acquisition – the ultimate power move – a bloodless coup that gets Microsoft top tech talent and leaves regulators scratching their heads.

You can’t help but feel sorry for the competition watchdogs; they’re bringing bows and arrows to a gunfight!

Till next month.