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The FTC sent letters to leaders at Google’s parent company Alphabet, Amazon, Anthropic, Microsoft and OpenAI, among others, asking them to shed more light on their partnership deals
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FTC wants to know just how much interaction and influence AI players have over their partners
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FTC Chair Lina Khan said in a statement the agency’s investigation will help it determine whether such partnerships pose a risk to innovation and fair competition
We mean it when we say there are too many artificial intelligence (AI) partnerships to list these days. There are deals between hyperscalers and AI companies. AI companies and enterprises. Enterprises and hyperscalers. Ad nauseum. (Have a look if you don’t believe us.) Put simply, there is a lot of noise around AI partnerships. But could these partnerships actually end up stifling AI competition?
The U.S. Federal Trade Commission (FTC) seems to think so. The agency on Thursday sent letters to leaders in the AI arena – including Google’s parent company Alphabet, Amazon, Anthropic, Microsoft and OpenAI – asking them to shed more light on the details of their partnership deals.
Among other things, the FTC wants to know just how much interaction and influence AI players have over their partners (including pricing and availability of AI-related products), the degree of exclusivity expected as part of their partnership arrangements, and the strategic rationale and competitive analysis behind the partnership deals they’ve signed.
FTC Chair Lina Khan said in a statement the agency’s investigation will help it determine whether such partnerships pose a risk to innovation and fair competition.
Sizing things up
Camila Tobón, partner at Denver-based law firm Shook, Hardy and Bacon, noted in an email to Silverlinings that the investigation comes on the heels of an Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence that President Joe Biden signed in October. In that order, Biden encouraged the FTC to use its authority to ensure the fair development of AI.
She also highlighted the fact that the FTC's probe is focused on generative AI. That's significant because that's "an already narrow area in terms of market participation. Generative AI systems need access to vast amounts of training data and also need large-scale computing power to run. So it may already be difficult for new market entrants that do not have the size or scale of the entities targeted in the Order to compete."
Tobón said she expects the FTC to carefully analyze whether there is too much concentration among market players. If it concludes there is, she said the agency could take action to promote competition.
Actions might include requirements "facilitating public access to high quality data sets for training or creating regulatory sandboxes to encourage other market participants to develop similar services," she said.
New Street Research's Blair Levin told Silverlinings that there's "no question" the FTC and other agencies like the Department of Justice (DoJ) are concerned about how companies with market dominance might impact AI's development. But he argued it would be wrong to assume there's a preordained outcome, or even that such concerns are new among regulators.
Khan's "concern about those entities using that dominance to suppress innovation and competition in AI is no different than the DOJ's concern about IBM in the 60's and Microsoft in the 90's or AT&T in the 10's, 40's, 50's and 60's of the last century," he told Silverlinings by email. "But I think the FTC and DOJ are sincerely grappling with it without a definitive sense of what should happen."
Under the microscope
Several of the companies required to submit information in the AI investigation were also asked to chime in on cloud competition when the FTC initiated a study of that market last March.
In November, the FTC issued its findings, concluding that the three practices most commonly cited as hindering cloud competition were software licensing practices, egress fees and minimum spend contracts. It also said at the time it was closely tracking developments in the Generative AI realm given the technology is “heavily reliant on cloud providers.”
We'll be watching closely to see how this all shakes out.