How AI is Becoming the New Global Monopoly

OpenAI, Inflection, Adept, and Character AI are just a few of the tech startups that giants have absorbed in 2024. Microsoft absorbs inflection. The big organizational change happening at Microsoft around AI. Microsoft is to boost its investment in chat GPT maker OpenAI. Amazon consumes Adept. Most of the company is now going to Amazon. The problem is, none of these startups have been purchased. However, tech giants are using their technology, resources, and even their workers to gain massive profits. Three of the biggest tech companies swallowing three of the biggest startups in the AI world without actually acquiring them. So how tech giants are using workers to monopolize AI? And how does this affect the labor market? Since the rise of artificial intelligence in 2023, the most promising startups are being absorbed by the tech giants. However, there is a problem. These startups were not formally acquired, but rather pseudo-acquired. For example, Microsoft paid $650 million to access Inflection's talent. Amazon shelled out $330 million for Adept's technology. And Google managed to integrate the founders of Character AI without the need for an acquisition. The result? Megacorporations are monopolizing AI while regulators struggle to keep up. Regulatory concerns heating up for the big tech giants. The U.S. federal court ruled on August 5th that Google has an illegal monopoly. AI is controlled by one or two or three corporations that are basically governments unto themselves. Character AI is a generative AI startup that has grown rapidly since its founding. Character.ai launched its software last September and has had more than 173 million visits last month, a 61% increase from March. In September of last year, it launched its software, and by last month, it had accumulated more than 173 million visits. Representing a 61% increase since March. Despite its loyal user base and its $1 billion valuation, the company struggled to generate sufficient revenue, leading to the need to seek alternatives. This pattern has been observed in several AI startups, where the initial focus is on user growth before monetizing the product. Instead of acquiring the startup, Google opted for a deal that allowed it to access key talent from Character.ai, such as its co-founder Noam Shazir, one of the pioneers of generative AI. The Google Cloud CEO announced a partnership with Character.ai to help make its chatbots even more sophisticated and accurate. Shazir, along with one-fifth of Character.ai's staff, returned to Google, and the startup's technology was licensed without the need for a formal acquisition. This type of agreement not only allows Google to benefit from Character.ai's innovation, but also avoids the regulatory scrutiny that could accompany a full acquisition. Another example of these pseudo-acquisitions is the deal between Amazon and Adept.ai. Adept is a startup valued at over a billion dollars that developed advanced AI technologies. In June, Amazon and Adept.ai struck a deal. Amazon reportedly paid at least $330 million to license Adept's technology, with a $100 million retention bonus to employees who jumped ship. This deal not only allowed Amazon to access Adept's technology, but also its valuable employees, particularly AI researchers. A key factor that makes this type of agreement attractive to startups is the high cost of the technological resources needed to develop generative AI models. Graphics processing units, or GPUs, in cloud computing are essential but expensive. This is where Amazon, with its cloud services platform, plays a crucial role by providing access to the infrastructure these startups need to continue developing their technology. The agreement between Microsoft and Inflection is another example of how large tech companies are using this approach to gain a competitive edge. Inflection AI has folded their core business and their top leadership. Microsoft hired the two principals from a startup called Inflection AI, which it had previously invested in. Inflection, co-founded by Mustafa Suleyman in 2022, developed a chatbot similar to ChatGPT. Microsoft signed a $650 million deal that did not involve a direct acquisition, but it did allow the company to access Inflection's AI models and hire most of its key staff. What is interesting about these deals is that they provide an exit for startups facing difficulties in generating revenue, while allowing megacorporations to avoid the regulatory scrutiny associated with traditional acquisitions. OpenAI, the company that created ChatGPT, was also affected by the sued acquisitions. Microsoft bought as much of OpenAI's for-profit arm as it could without actually taking ownership. And OpenAI probably liked that setup because it kept them in control. But it also worked really well for Microsoft. Why? Well, there's far, far, far less regulatory oversight of minority investments than takeovers. If Microsoft had wanted to buy OpenAI, regulators from around the world might have called foul. However, they also raise questions about the impact on competition. These transactions allow large corporations to capture the talent needed in the AI arms race without facing the same levels of oversight as a full merger or acquisition. Venture capitalists, or VCs, who initially funded startups like Character AI, Adept, and Inflection, are also affected by these deals. Although many of them are compensated through licensing agreements, the returns they receive fall far short of their original expectations. VCs usually expect returns of 5 to 10 times their investment. But in these cases, it is unlikely that licensing deals will offer those returns. One of the less-discussed aspects of these deals is their impact on the employees of startups who are not part of the deal. In the case of Adept, for example, Amazon only hired the AI researchers, while product teams, sales, and other areas were not as fortunate. This creates inequalities among employees, where some are absorbed by the megacorporations and receive benefits, while others are left struggling to rebuild a new business without their best talent. Tech giants may be dodging regulatory scrutiny for now, but regulators are not completely oblivious to these maneuvers. The FTC has issued Microsoft a subpoena for more information about those AI deals. The Department of Justice and the Federal Trade Commission are in now the final stages of a deal to divide up antitrust inquiries into NVIDIA, Microsoft, and OpenAI, several of the most dominant players in the rapidly emerging AI space. The FTC, or Federal Trade Commission, has already begun investigating the deal between Microsoft and Inflection, and it has also opened an informal investigation into the deal between Amazon and Adept. Additionally, the U.S. Congress has taken note of these moves, with three senators calling for a deeper investigation. The main challenge for regulators is determining whether these deals are anti-competitive. Although these are not full acquisitions, the impact of these partnerships on the market can be significant. The primary concern is that these large corporations are amassing so much power and talent that they could limit competition and innovation in the AI space. Secretary Yellen is warning about what she calls significant risks associated with the use of AI by financial companies. Yellen was talking really in detail for the first time about what she sees as vulnerabilities stemming from using AI in finance. The rise of pseudo-acquisitions reflects a new strategy used by megacorporations to avoid regulatory scrutiny while gaining access to cutting-edge talent and technology. The cases of Google, Amazon, and Microsoft with startups like Character AI, Adept, and Inflection demonstrate how these large companies are using strategic agreements to solidify their position in the AI arms race.