Microsoft deal with AI startup to be investigated by UK competition watchdog

The Competition and Markets Authority (CMA) has launched a full investigation into Microsoft’s deal with AI startup Inflection.

Earlier this year, Mustafa Suleyman – who started Inflection in January 2022, two months after leaving Google – and a number of his colleagues were hired by Microsoft to lead the tech company’s new AI division. At the same time, Microsoft signed deals with Inflection to access its AI models.

The arrangement was criticised by regulators at the time as it avoided the regulatory attention of an outright acquisition.

In April, the UK regulator said it was “considering whether it is or may be the case that the transaction has resulted in the creation of a relevant merger”, and opened a three-month comment period.

It now has enough evidence to begin a full investigation, it said, with a decision on whether progress to the next stage due by 11 September.

A Microsoft spokesperson said: “We are confident that the hiring of talent promotes competition and should not be treated as a merger. We will provide the UK Competition and Markets Authority with the information it needs to complete its inquiries expeditiously.”

At the time of the Microsoft and Inflection AI tie up, the EU antitrust chief, Margrethe Vestager, said: “We have registered that this is happening and also registering that it’s happening in a way so that it escapes our scrutiny from our usual boxes.”

The CMA’s move comes amid broader concerns about competition in the AI sector. Another deal involving Microsoft and French AI startup Mistral was investigated by the CMA at the same time as the Inflection inquiry, though the regulator later dropped its investigation.

A deal between Amazon and AI lab Anthropic is also being investigated by the CMA as a potential merger. Anthropic has committed to using Amazon Web Services as its primary cloud provider, while Amazon has taken a $4bn (£3bn) stake in the company, which develops the Claude LLM.

Meanwhile, ChatGPT maker OpenAI took a substantial investment from Microsoft in 2019. This was paid in part in credits for its cloud computing service. Last week, Microsoft dropped its “observer” seat on the board of OpenAI. Instead, Microsoft and Apple, which had been about to take up a similar role, will attend “regular stakeholder meetings”, an OpenAI spokesperson said.

The CMA is also investigating the relationship between Microsoft and OpenAI, after the former took a substantial stake in the latter’s for-profit arm. OpenAI once described the stake as making Microsoft the “minority owner” but this was quietly updated to note the company simply had a “minority economic interest”.