In the race to stay ahead in artificial intelligence, big tech companies are gobbling up the talent and products of innovative AI startups without formally acquiring them.
Now three U.S. senators are calling for an investigation.
San Francisco-based Adept sent its CEO and key employees to Amazon late last month to announce a deal to license Adept’s AI systems and datasets to the e-commerce giant.
Some call it a “reverse buyout hire.” Others call it poaching. Whatever you call it, some in Washington are wary of it as an attempt to circumvent antitrust laws.
“I’m very concerned about the massive consolidation that’s happening in the AI ​​space,” Sen. Ron Wyden, D-Oregon, told The Associated Press. “The tech term is ‘up and down the stack,’ but in layman’s terms it means a few companies control most of the market and are focused on buying up other people’s talent rather than innovating.”
Michael A. Kusmano, a business professor at the Massachusetts Institute of Technology, said that “hiring by acquisition,” where one company buys another and absorbs its talent, has been common in the tech industry for decades, but what’s happening in AI is a little different.
“It’s a new development to acquire some or most of the employees, but not all of them, and then license the technology, leaving the company functioning but unable to really compete,” Kusmano said.
A similar move occurred with AI company Inflexion in March, when Microsoft hired Inflexion co-founder and CEO Mustafa Suleyman to head the company’s consumer AI business, along with Inflexion’s chief scientist and several top engineers and researchers. The deal has already drawn some scrutiny from regulators, especially in Europe.
Wyden also wants U.S. regulators to investigate the Amazon-Adept deal. Wyden, along with Sens. Elizabeth Warren of Massachusetts and Peter Welch of Vermont, wrote antitrust enforcement officials at the Justice Department and the Federal Trade Commission on Friday urging them to “continue and targeted action to combat unfair consolidation across our industry.”
Amazon did not respond to a request for comment Friday.
“What’s happening here is that big tech companies are trying a new strategy rather than buying startups,” Wyden said in an interview before sending the letter. “They want to avoid antitrust scrutiny and don’t want to formally acquire companies. I think this will be the strategy until the FTC starts to seriously investigate these transactions.”
The Justice Department and FTC said they received the senators’ letter but declined to comment further.
President Joe Biden’s administration and lawmakers from both parties have in recent years pushed for increased scrutiny of the tech industry, appearing to block major acquisitions that might have previously gone through easily. For example, U.S. antitrust enforcement agencies plan to investigate Microsoft, Nvidia and OpenAI for their roles in the artificial intelligence boom, while the Department of Justice is investigating chipmaker Nvidia and the Federal Trade Commission is scrutinizing close business partners Microsoft and OpenAI.
Tech giants such as Microsoft, Amazon and Google are becoming more conservative and making fewer acquisitions in the AI ​​space, Kusmano said.
“It seems like a clever thing to do, but I don’t think anyone is being fooled,” he said.
The problem for small AI startups is that building AI systems is expensive, requiring expensive computer chips, power-hungry data centers, vast amounts of data for training, and highly skilled computer scientists.
Adept, which aims to build an AI software agent to help with workplace tasks, said it was trying to do two things at once: build the underlying AI technology and develop end-user products. But to continue down that path “would have required us to pay significant attention to financing the underlying model, rather than delivering on our vision for the agent,” it said in a statement explaining the Amazon deal.
“Maybe Amazon decided they didn’t have a real future or the financial muscle to compete in this space, so they wanted to be acquired outright,” Kusmano said. “But if they’re not willing or able to do that, this is the next best thing for them.”
Wyden, a longtime technology enthusiast who helped write the 1996 law that laid out the ground rules for free speech on the Internet, said he generally supports a straightforward approach that encourages innovation while putting in guardrails where necessary.
But in the AI ​​industry, “companies such as Microsoft, Amazon and Google either own major parts of the AI ​​ecosystem or are dominant thanks to their vast resources,” he said. The letter calls on enforcement agencies to investigate how the tech giants are establishing their AI dominance “through partnerships, stock deals, acquisitions, cloud computing credits and other arrangements.”
John F. Coyle, a law professor at the University of North Carolina, said he thinks Amazon’s hiring of Adept employees without buying the company is clearly a move to avoid antitrust issues, but he said this type of hiring is not a “reverse acquisition hire.”
Coyle said hiring through acquisitions is typically a face-saving move that can be passed off as a success story and an alternative to liquidation. Smaller companies can turn it into an advantage by saying they were sold to Amazon or Facebook parent Meta Platforms, for example, even if it wasn’t the founders’ original plan.
“This is not a talent acquisition. This is talent poaching,” Coyle said of Amazon and Adept.
This isn’t unique to the tech industry, said Coyle, calling the move “one version of a very old story.” He said he teaches his students the example of a New York City advertising agency in the 1950s. Some employees left the company to start a new business, then poached about 100 other employees and hired them into their own company.
“There are countless examples of one company raiding another and taking all of the employees,” Coyle said. “This existed before hire-by-acquisition and will likely occur after hire-by-acquisition.”
