Well, the Federal Trade Commission (FTC) has been keeping a close eye on these budding relationships, and they’ve got some thoughts to share.
In a recent report, the Federal Trade Commission (FTC) has raised concerns about the growing partnerships between major cloud service providers (CSPs) and leading AI developers. The report, released on January 17, 2025, highlights the potential competitive risks posed by these alliances, particularly those involving tech giants like Microsoft, Amazon, and Alphabet (Google) with AI developers such as OpenAI and Anthropic.
The FTC’s report delves into the dynamics of these partnerships, revealing several key aspects that could impact competition and innovation in the AI and cloud computing sectors:
- Equity and Revenue-Sharing Rights: CSP partners often retain significant equity and revenue-sharing rights in their AI developer partners. This financial entanglement can lead to a concentration of power and resources within a few dominant firms.
- Consultation, Control, and Exclusivity Rights: The report highlights that CSP partners hold various consultation, control, and exclusivity rights over their AI developer partners. These rights can limit the ability of AI developers to collaborate with multiple firms, increasing their dependency on their CSP partners.
- Commitments to Cloud Services: AI developers are often required to spend a large portion of their CSP partner’s investment on cloud services provided by the CSP. This practice, known as “circular spending,” can create a feedback loop that shields CSPs from financial risks while locking AI developers into exclusive agreements.
- Access to Sensitive Information: CSP partners gain access to sensitive technical and business information, including AI development methods, confidential chip co-design, partner finances, and customer usage data. This access can provide CSPs with unfair competitive advantages.
- Impact on Competition: The report warns that these partnerships could limit access to essential inputs such as computing resources and engineering talent, making it difficult for non-partner AI developers to compete. Additionally, the increased switching costs for AI developers can restrict their ability to change CSPs or use multiple CSPs.
FTC Chair Lina M. Khan emphasized the need for vigilance as companies rapidly deploy generative AI technologies. She noted that these partnerships could create lock-in effects, deprive startups of key AI inputs, and reveal sensitive information that undermines fair competition. The report aims to equip the FTC, policymakers, and the public with a deeper understanding of these corporate partnerships and their potential implications for the economy and consumers.
The FTC report specifically highlights Microsoft’s partnership with OpenAI as a prime example of these concerns. Microsoft’s substantial investment in OpenAI has enabled the AI startup to become one of the most successful in the world, spurring a wave of unprecedented technology investment and innovation.
However, this partnership also raises several competitive issues. OpenAI has an exclusive deal with Microsoft to host all of its AI models on Microsoft’s Azure servers, which can limit the availability of OpenAI’s advanced AI models to other potential partners. Additionally, the integration of OpenAI’s models into Microsoft’s products, such as the Azure OpenAI service, further strengthens Microsoft’s position in the AI market.
Microsoft’s partnership with OpenAI provides it with access to sensitive technical and business information, which can be used to gain competitive advantages.
Perhaps, in addition to these concerns, the FTC has launched an investigation into Microsoft’s cloud business practices, particularly focusing on its Azure licensing models. The agency is examining allegations that Microsoft is using punitive licensing terms to prevent customers from moving their data from Azure to competitors’ platforms.
It is probably safe to assume that if this investigation proceeds unadulterated by politics, this investigation will also explore how Microsoft’s integration of AI services, including those from OpenAI, might further entrench its position as a dominant player in the AI market. By scrutinizing these practices, the FTC should ensure that competition remains fair and that no single company can monopolize the rapidly evolving AI landscape.
Similarly, Amazon and Google are also forming strategic partnerships with AI developers to strengthen their positions in the market. Amazon’s collaboration with Anthropic and Google’s partnership with various AI startups highlights their efforts to secure key AI inputs and technologies. These partnerships often involve significant equity and revenue-sharing rights, consultation, control, and exclusivity rights, and commitments to cloud services, which can limit the ability of AI developers to collaborate with multiple firms and increase their dependency on their CSP partners.
As the AI landscape continues to evolve, the FTC’s report serves as a crucial reminder of the need to balance innovation with fair competition. The findings underscore the importance of monitoring and regulating the relationships between big tech firms and AI developers to ensure a level playing field for all participants in the market.
