Microsoft-Inflection AI Partnership Cleared by UK Regulator

The UK Competition and Markets Authority (CMA) has approved Microsoft’s partnership with Inflection AI, a machine learning and generative artificial intelligence company.?

This decision comes after a probe initiated in July to examine potential competition concerns in the country’s AI chatbot market.

Partnership Details and CMA Investigation

Microsoft’s partnership with Inflection AI involves hiring several former employees, including Mustafa Suleyman, co-founder of Google DeepMind, who now heads Microsoft’s newly-created AI unit.

We’ve cleared Microsoft’s arrangements with #Inflection which includes the hiring of former Inflection employees.

Joel Bamford, our Executive Director of Mergers, discusses the process leading up to the decision.

Read the article: https://t.co/DYcbJAUoTy#Microsoft #AI

— Competition & Markets Authority (@CMAgovUK) September 4, 2024

According to Reuters, Microsoft agreed to pay approximately $650 million as part of the deal, gaining access to Inflection’s AI models and enabling the startup to reimburse its investors.

This substantial investment gives Microsoft access to Inflection’s AI models. It allows the startup to reimburse its investors, including high-profile figures such as former Microsoft CEO Bill Gates and former Google CEO Eric Schmidt.

The CMA’s investigation focused on whether this partnership constituted a relevant merger situation under the Enterprise Act 2002.?

The regulator found that Microsoft’s acquisition of Inflection’s team, with their critical expertise in AI development, fell within its merger control jurisdiction.

In its assessment, the CMA concluded that Inflection AI had a minimal market share in the UK and did not compete significantly with Microsoft’s chatbots.

Similarly, the regulator noted that Inflection’s AI-powered chatbot, Pi, had been available in the UK since May 2023 but had not gained substantial traction.

Excited to announce that we’ve raised $1.3B to build one of the largest clusters in the world and turbocharge the creation of Pi, your personal AI.https://t.co/p5AfRXGPan

— Mustafa Suleyman (@mustafasuleyman) June 29, 2023

The CMA also evaluated the impact on product development and innovation in the consumer chatbot market.

It determined that Inflection AI’s focus on emotional intelligence (EQ) was not a material constraint on competitors, and others could easily replicate its innovations in the industry.

Inflection AI’s Operations And Regulatory Landscape for AI Partnerships

Established in 2022, Inflection AI was involved in various AI-related activities, including the development of foundation models (FMs) and the supply of downstream AI applications such as chatbots.

The company has also begun an AI studio business for enterprise customers.

Today at Inflection we are announcing some important updates. A new phase for the company begins now.
Read more here: https://t.co/GarApfvSwr

— Inflection AI (@inflectionAI) March 19, 2024

However, the CMA’s decision indicates that these operations needed to be considered more significant to substantially impact competition in the UK market.

Notably, this approval marks Microsoft’s second regulatory win in the UK AI sector this year.

In May, the CMA concluded its investigation into Microsoft’s partnership with French startup Mistral AI, also finding no substantial competition concerns.

The decision comes amidst increasing regulatory scrutiny of big tech-startup AI deals.

The CMA is currently investigating Amazon’s partnership with AI startup Anthropic and is considering whether to launch a probe into Alphabet’s partnership with the same company.