Microsoft’s Inflection AI Deal Gets Green Light from UK Regulator

The UK’s Competition and Markets Authority has given the green light to Microsoft’s acquisition of employees from Inflection AI. The antitrust regulator found that this “acquihire” of the AI startup’s team doesn’t affect competition in the enterprise AI space.

The Competition and Markets Authority (CMA) shared the results of its investigation in a summary published this week. The CMA concluded that Microsoft’s acquisition of certain assets from Inflection AI qualifies as a “relevant merger situation.” This means that similar deals could face scrutiny for potential competition issues in the future.

“Prior to the transaction, Inflection had a very small share of UK domain visits for chatbots and conversational AI tools and … had not been able to materially increase or sustain its chatbot user numbers,” the CMA wrote. “Competitors did not regard Inflection’s capabilities with regard to EQ [emotional intelligence, which was an Inflection selling point] or other product innovation as a material competitive constraint.”

Why is the CMA investigating Microsoft, Inflection AI deal?

Inflection AI is a California-based artificial intelligence startup that was founded in 2022 by Reid Hoffman, Mustafa Suleyman, and Karén Simonyan. The company created Pi, an AI-powered personal assistant designed to offer emotional support and assistance. Pi engages in interactive conversations with users while providing personalized advice tailored to their unique interests and needs.

Pi assists users with everyday tasks like studying and coding, helps brainstorm ideas, and encourages exploring new concepts. It’s available across multiple platforms, including the web and mobile. Pi was initially created as a personal AI assistant but is now increasingly used in professional environments to enhance productivity and support career growth.

In June 2023, Inflection AI announced it had raised $1.3 billion to develop more personal AI systems, with Microsoft as a major investor. Earlier in the year, Microsoft hired Inflection AI’s co-founders, Mustafa Suleyman and Karén Simonyan, to lead its new AI division. Microsoft also absorbed Inflection AI, including its Pi assistant, and hired most of its employees to compete with Apple and Google in the AI market. This move raised significant concerns among customers about privacy and data ownership.

In July, the CMA launched an investigation to gather more evidence and decide whether to move forward with a more detailed “phase 2” review. The UK antitrust regulator has been examining the deal since April, consulting third parties to determine if it falls within UK merger guidelines.

What are the CMA’s key findings?

In its findings, the CMA mentioned that Microsoft hired almost all of the Inflection AI team and entered into a series of commercial agreements. Those agreements included a nonexclusive licensing deal to use Inflection’s intellectual property (IP) for Microsoft’s Azure cloud. A potential merger could lead to substantial lessening of competition.

“Based on the evidence seen by the CMA, the team of staff responsible for development is therefore at the core of any business seeking to develop FMs or chatbots. In this context, the CMA considers that acquiring a team with relevant know-how — even without further assets — may fall within the CMA’s merger control jurisdiction,” the CMA added.

It’s important to note that the partnership between Microsoft and Inflection AI is still under review by the European Union and the US Federal Trade Commission (FTC). The FTC is also investigating Microsoft’s close partnership with OpenAI, amid concerns that the collaboration may give them an unfair competitive advantage.