Microsoft’s $13 Billion OpenAI Investment Faces Intensified EU Scrutiny

Microsoft's OpenAI Pact Under EU's Antitrust Lens

Microsoft Corp.’s $13 billion investment in OpenAI Inc. is under heightened scrutiny by the European Union’s antitrust watchdogs, poised to question rivals about OpenAI’s exclusive use of Microsoft’s cloud technology.

Margrethe Vestager, the EU’s antitrust chief, announced Friday that the bloc has ruled out probing the deal under merger regulations. Instead, regulators will investigate Microsoft’s exclusivity clauses with OpenAI to determine their impact on competition.

Market Reactions and Regulatory Concerns

The EU will also examine Google’s arrangement with Samsung Electronics Co. to pre-install its AI model “Gemini nano” on certain devices. Vestager noted that regulators are evaluating Big Tech’s strategy of acquiring firms through mass hiring, following the US Federal Trade Commission’s probe into Microsoft’s recruitment of Inflection staff.

“We will ensure such practices don’t bypass our merger control rules if they essentially lead to a concentration,” Vestager said.

Microsoft's Azure Under Scrutiny

Microsoft’s agreement with OpenAI designates Azure as the exclusive cloud provider for OpenAI, a clause that EU regulators are scrutinizing. Preliminary questions from the EU often lead to formal investigations, potentially resulting in behavioral changes and fines for anti-competitive practices.

“We appreciate the European Commission’s thorough review and its conclusion that Microsoft’s investment and partnership with OpenAI does not give Microsoft control over the company,” Microsoft stated. “We stand ready to respond to any additional questions the EC may have.”

Regulatory Interest Sparked by OpenAI's Internal Turmoil

The EU’s antitrust arm has been reviewing the Microsoft-OpenAI partnership since January, after a scandal involving the firing and rehiring of OpenAI’s Sam Altman exposed the firms’ deep ties. Microsoft CEO Satya Nadella played a key role in Altman’s return, even offering to hire him along with other OpenAI employees.

OpenAI’s board eventually reinstated Altman, appointing a three-person interim board and adding Microsoft as a non-voting observer. This episode prompted regulators to investigate the agreement further.

The UK’s Competition and Markets Authority and the US Federal Trade Commission are also examining whether the partnership has shifted the balance of power, potentially giving one side more control.

Cloud Power Driving AI Boom

At the heart of the Microsoft-OpenAI partnership is the immense computing power needed to sustain the generative AI surge. The demand for cloud services has soared, with OpenAI becoming a significant customer of Microsoft’s cloud business.

Under EU merger rules, officials vet deals within strict timeframes, often seeking remedies for competition concerns. While rare, some deals are vetoed, and firms face penalties for misleading regulators.

Microsoft's Antitrust Challenges

Microsoft is no stranger to EU antitrust scrutiny, having fought long battles over its market dominance with Windows. Recently, the EU accused Microsoft of abusing market power by bundling its Teams video-conferencing app with other business software.

As AI continues to drive market dynamics, Microsoft’s substantial investment in OpenAI will remain under close watch from global regulators, ensuring competitive practices in the rapidly evolving tech landscape.