OpenAI drama prompts CMA review into Microsoft relationship

An initial review into the relationship between OpenAI and Microsoft has been announced by the UK's competition watchdog amid concerns the duo could be impacting competition in the UK AI market. 

The Competition and Markets Authority (CMA) said it intends to examine whether Microsoft’s significant investment in the firm amounts to an “acquisition of control”, or a merger.

Sorcha O'Carroll, senior director for mergers at the CMA said this initial review will see the watchdog seek comment from both parties. This phase of the investigation could determine whether a full competition probe is conducted, O’Carroll added.

Microsoft is a major backer of OpenAI, the company behind ChatGPT. The US tech giant has invested over $10 billion in the firm so far, and owns roughly 49% of the company.

OpenAI controversy played a role in CMA decision

OpenAI was rocked by controversy in late November after a shock boardroom coup resulted in CEO Sam Altman’s ousting from the firm. 

Days of chaos followed the incident, which saw Altman co-founder Greg Brockman join Microsoft to lead a new AI research team before being re-appointed within a matter of dats.

The duo’s return to OpenAI was partly due to a company revolt that saw staff demand their immediate return.

This period of chaos appears to have played a role in the CMA’s decision to launch an investigation. The watchdog said recent developments in the company’s governance and leadership structure influenced its decision.

“There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft,” the CMA said in a statement.

“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.”

Alex Haffner, competition partner at UK law firm Fladgate said the announcement points toward wider concerns over AI regulation and competition in this rapidly burgeoning market.

“Today’s announcement by the CMA that it is considering whether to investigate the Microsoft/Open AI partnership under its merger control powers is particularly interesting given wider concerns about the regulation of AI,” he said.

“In order to move forward with any investigation, the CMA will need to find evidence that the recent fall-out from the Sam Altman affair has led to material changes in the governance of Open AI and, more specifically, Microsoft’s influence over its affairs.”

Is the relationship between OpenAI and Microsoft too close?

Microsoft has been betting on OpenAI for several years, having first built an Azure-based supercomputer for the firm in 2020 and now having backed the startup with significant investment. 

OpenAI’s models have become a cornerstone of Microsoft’s AI-assisted product range, with the industry-leading GPT-4 forming a large part of the backend for Microsoft Copilot, though Microsoft has not disclosed the exact extent to which it relies on the model.

Rory Bathgate

Rory Bathgate is Features and Multimedia Editor at ITPro, overseeing all in-depth content and case studies. He can also be found co-hosting the ITPro Podcast with Jane McCallion, swapping a keyboard for a microphone to discuss the latest learnings with thought leaders from across the tech sector.

The CMA’s investigation will hinge on whether the recent upheaval at OpenAI, as the return of Sam Altman and simultaneous rearranging of OpenAI’s board saw Microsoft obtain a non-voting observer seat on the board.

Although OpenAI’s structure prevents Microsoft from leveraging further control via this route and the firm has not named who will take up its observer seat, the CMA could interpret the reshuffle as a power grab that has given Microsoft undue sway over the firm.

The regulator has held off with intervention in the space to now, with its initial report on foundation models (FMs) having compared Microsoft’s significant investment in OpenAI to the funds raised by Amazon and Google-backed startup Anthropic and made no firm judgements on the potential impacts of these investments on smaller firms in the AI space.