On Monday (July 1), reports surfaced that Amazon had “acquired” the co-founders and team members of Adept AI. This is another example of a big tech company choosing to shell out talent from an AI startup instead of a simple acquisition. The question remains to what extent this type of investment can be considered a type of backdoor merger that will have a significant impact on the market competition.
In March 2024, Mustafa Suleiman, co-founder of Inflection AI and Google Deepmind, was hired by Microsoft to lead Microsoft AI, its consumer AI division, along with most of the startup’s staff. Microsoft reportedly paid about $650 million for access to the startup’s model and legal protections. At the time, Inflection was valued at $4 billion.
While hiring through acquisitions in the tech industry is not new, the impact of the practice is particularly significant today due to heavy investments in AI by large tech companies, according to Laura Petrone, principal thematic analyst at GlobalData.
“AI-related acquisitions will come under intense scrutiny from antitrust regulators because they are part of Big Tech’s strategy to strengthen their position in AI while avoiding antitrust scrutiny,” Petrone said. Amazon’s move for Adept AI could be seen as a way to circumvent that scrutiny, but it remains to be seen whether it will be successful, Petrone said.
The EU has been a leader in holding big tech companies accountable. In April, the European Commission reviewed Microsoft’s $10 billion investment in OpenAI and cleared the company of charges of stealth acquisition. But European Commission Vice-President Margrethe Vestager warned that big tech companies will remain under close scrutiny from EU regulators.
Vestager’s US counterpart, Federal Trade Commission Chairwoman Lina Khan, has long campaigned to use her influence to enact similar business reforms in the US. In January, the FTC ordered Microsoft, OpenAI, Amazon, Anthropik and Alphabet to provide information about their recent GenAI investments and partnerships, and asked them to “better understand these relationships and their impact on the competitive environment internally.”
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From GlobalData
Will the FTC block backdoor acquisitions?
The FTC’s investigation only covers GenAI, and so far it has only been an information order, noted Hosuk Lee Makiyama, director of the European Center for International Politics and Economics. “While the bar for invoking antitrust law is fairly low and unclear in U.S. antitrust law, I’m not convinced the FTC will be able to prove Amazon’s Bedrock AWS. [Amazon’s cloud GenAI offering] “The Chinese government has enough market power to effectively control market prices and block new entrants,” Makiyama said.
“The AI market is also very complex, and a lot of smaller companies are building models on OpenAI, so I think the FTC could respond if Microsoft and OpenAI start going after smaller downstream companies that are building on their models,” he added.
Microsoft’s acquisition of Inflection AI and its partnership with OpenAI, which is already driving visible revenue growth across the company’s product lines, gives Microsoft CEO Satya Nadella arguably the most powerful single cohort of AI in the world, potentially dominating a massive AI-driven global market, said Mike Ohm, senior analyst at GlobalData.
Amazon’s acquisition of Adept AI is small by comparison, and only demonstrates Amazon’s efforts to reclaim ground lost to its peers in the AI space. “Inflexion has successfully raised over $400 million in capital at a $1 billion valuation from Amazon itself, NVIDIA, Microsoft, and others. Amazon won’t do that. It appears Amazon has ‘acquired’ Adept’s top team to bolster its AGI R&D operations as it struggles to catch up with GenAI,” Ohm said.
Under the agreement, Amazon will “non-exclusively” license some of Adept’s “agent” technology, which is used to automate enterprise workflows, but few details of the deal are known about what remains of Adept.
After Microsoft clears out its AI startup talent, the companies that remain will likely stop developing its flagship product, the high-EQ copilot, and instead work on a line of customized commercial applications, Ohm said. “It’s unclear whether Microsoft will subsidize this, but it’s clear why the company wanted to keep Inflection’s top team in-house,” he added.
Orme agrees that Lina Khan’s FTC is unlikely to go after Amazon over the Adept acquisition, but is likely to go after Microsoft over Inflexion and OpenAI. “Microsoft was very careful about appointing a non-voting director to OpenAI, given the fringe threat from regulators,” Orme said.
