The FTC has launched an investigation of several big tech companies’ AI investments and partnerships. The investigation could spell trouble for big tech and cut AI off from a major source of funding.

From a new report by CNBC:

The Federal Trade Commission said Thursday it will conduct an extensive study on the artificial intelligence field’s biggest heavyweights, including Amazon, Alphabet, Microsoft, Anthropic and OpenAI.

FTC Chair Lina Khan announced the inquiry during the agency’s tech summit on AI, describing it as a “market inquiry into the investments and partnerships being formed between AI developers and major cloud service providers.”

Restraint of Trade

Microsoft has invested billions in OpenAI. Amazon and Google are backing Anthropic.

So OpenAI and Anthropic must be sitting on a ton of cash, right? Well, it’s a little more complicated than that…

Much of the tech giants’ “investments” in OpenAI and Anthropic came in the form of compute credits. This means that OpenAI and Anthropic have to use their partner’s cloud service.

In a truly competitive market, OpenAI would compare the price and service of AWS, Azure, Google’s GCP and others. Then, Sam Altman would give his business to whoever offered the best deal.

But because of the Microsoft partnership, Azure wins by default.

I’m not a lawyer. But if this isn’t restraint of trade, I don’t know what is.

Widening the Moat

AI partnerships make Azure, Amazon’s AWS, and GCP better cloud platforms. Smaller cloud companies will find it hard to compete.

They not only need to set up data centers. Now they have to find billions to invest in an AI startup and form a similar partnership.

AI partnerships expand the moat for the big cloud providers. The FTC may find that this qualifies as anticompetitive behavior.

Who Will Fund AI?

It can cost billions of dollars to train a new AI model. If the FTC unwinds big tech’s AI partnerships, who will fund this research?

Microsoft gave OpenAI $13 billion in cash and compute credits. No venture firm in the world can afford to do that.

If regulators do reverse these partnerships, startups like OpenAI will need to make huge changes.

They can try to use smaller models that require less compute. Or, they can go public and hope to raise billions.

Wrap-Up

The FTC probe is just getting started. But if Lina Khan finds that Microsoft, Amazon and Google restrained competition with their AI partnerships, expect a major shake-up.

OpenAI and others will have to find a new funding source. And Big Tech’s AI strategy is back to square one.

What do you think the FTC will do? Leave a comment and let us know!

Have a great weekend, everyone!

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Photo: “Lina M. Khan, Chair – Federal Trade Commission” by BrookingsInst is licensed under CC BY-NC-ND 2.0.