FTC weighs antitrust probe into Microsoft's OpenAI deal

Pouring billions into an AI startup and weaving its tech into every product you sell sounds a lot like an acquisition. Just don't say that out loud to the regulators.

Microsoft might be facing another major antitrust headache. Reports indicate that the US Federal Trade Commission (FTC) is currently weighing an investigation into Microsoft's multi-billion-dollar relationship with OpenAI to see if it breaches antitrust laws.

More than ten billion, zero equity

Microsoft has poured upwards of $10 billion into OpenAI over the years, mostly to fund the enormous computing power required to train frontier models.

In return, the software giant has been aggressively embedding ChatGPT into nearly every corner of its product catalog. However, because OpenAI was founded in 2015 as a non-profit, Microsoft has always maintained that its massive checkbook does not equal corporate control.

Frank X Shaw, Microsoft's chief communications officer, moved quickly to push back against the talk of a probe. He stressed that while deal terms are confidential, Microsoft does not own any portion of OpenAI and is simply entitled to a share of profit distributions.

Basically, Microsoft's defense is that it acts as a very generous financial backer and profit participant, not an owner.

Boardroom drama invites double trouble

The cozy arrangement faced real stress during the recent boardroom drama where Sam Altman was abruptly fired and reinstated. That chaotic weekend rattled Microsoft executives, prompting the company to secure a non-voting observer seat on OpenAI's reconstituted board.

That observer seat seems to have caught the attention of regulators on both sides of the Atlantic.

Late last week, the UK Competition and Markets Authority (CMA) opened a preliminary consultation to determine whether the Microsoft and OpenAI partnership could be construed as a merger that threatens competition. If CMA finds cause, a full formal investigation will follow.

Now the FTC is considering its own probe. The agency is already scrutinizing ChatGPT over privacy and reputational risks, and it has an ongoing rivalry with Microsoft. Even after Microsoft closed its $69 billion purchase of Activision Blizzard in October, the FTC has kept trying to unwind that deal.

UK CMA chief Sarah Cardell also voiced frustration back in October, warning that the tactics Microsoft used during the Activision process were unacceptable. Regulators clearly have Microsoft on their radar.

Why it matters

We think Microsoft's clever playbook of securing complete strategic alignment without technically buying a company is finally hitting a wall.

Traditional mega-mergers are virtually impossible under today's regulatory climate. Microsoft bypassed that hurdle by offering compute credits, grabbing profit-sharing rights, and leaving the formal corporate structure intact. It allowed Microsoft to revamp its entire product line with OpenAI tech while skipping standard merger clearance.

That strategy looked brilliant right up until OpenAI's boardroom collapsed. By stepping in to stabilize the situation and taking an observer seat, Microsoft made its operational influence undeniable, giving regulators the exact opening they needed.

If the FTC or CMA decides this partnership effectively functions as a merger, it could completely disrupt Big Tech's preferred AI investment blueprint. Giants like Google and Amazon, who are using similar deal structures to partner with leading AI startups, might suddenly find their own backdoors closed.