Big AI companies found creative ways to gain cutting-edge technology and talent without buying startups.
What happened: In 2024, some tech giants entered into novel partnership arrangements with AI startups, hiring top executives and securing access to technology without acquiring the companies outright. These agreements enabled the giants to take on elite talent and proven technology quickly with less risk that regulators might hinder such actions. The startups lost their leadership teams and control over key technical developments. In return, they received cash (in some cases, at least), rewarded investors, and were able to step back from the expense of building cutting-edge models.
Driving the story: Microsoft, Amazon, and Google used their deep pockets and cloud infrastructure to strike deals with Inflection AI, Adept AI and Covariant, and Character.ai respectively. (Disclosure: Andrew Ng is a member of Amazon’s board of directors.)
- Microsoft blazed the trail in March. The tech giant invested $650 million in Inflection AI, licensed the startup’s models, integrated its conversational AI technologies, and hired much of its staff, including co-founders Mustafa Suleyman and Karén Simonyan. Microsoft named Suleyman CEO of a new AI division, putting him in charge of Microsoft’s own model building efforts and consumer-facing products like Bing and the Copilot product line. The remainder of Inflection focuses on customizing AI models for commercial clients.
- In July, Amazon inked a similar agreement with Adept, a startup that built agents for tasks such as automating data entry and managing customer support tickets, under undisclosed terms. Amazon hired most of Adept AI’s staff, including CEO David Luan and other co-founders who were alumni from Google and OpenAI, and licensed Adept’s models, datasets, and other technology non-exclusively. Adept stopped developing in-house models to concentrate on building agents.
- In October, Amazon further bolstered its logistics capabilities by forging an agreement with Covariant, a maker of AI-driven warehouse robots, also under undisclosed terms. Amazon hired most of the startup’s staff, including CEO/co-founder Peter Chen and chief scientist/co-founder Pieter Abbeel, and licensed its robotics models. In December, Amazon paired Abbeel and former Adept CEO Luan to run a new lab devoted to developing agents and artificial general intelligence. Covariant continues to serve customers in fulfillment centers and other industries.
- In August, Google and conversational AI startup Character.ai cut a similar deal. Google hired Character.ai’s co-founders, Noam Shazeer and Daniel De Freitas, along with key team members, and inked a non-exclusive license to its technology. Shazeer joined Google’s Deep Learning research team, and other new hires set to work on Google’s chat services. Google gave Character.ai an undisclosed sum to buy out its investors and continue developing personalized AI products.
Behind the news: Tech giants have long relied on traditional acquisitions to gain new talent and capabilities, often acquiring startups specifically for their skilled teams (known as an acquihire) and/or their products or underlying technology, which can be expensive and time-consuming to develop and test in the market. But traditional acquisitions increasingly face scrutiny from antitrust regulators who are concerned about big companies reducing competition by buying out smaller ones. For example, the United States Federal Trade Commission sought to block Amazon’s acquisition of iRobot, prompting the companies to abandon the transaction in January 2024.
Where things stand: Giving startups a lump sum and/or licensing fees in return for top talent and technology looks like the new normal for tech giants that are challenged to keep pace with rapidly advancing research and markets. But even arms-length arrangements don’t immunize tech giants and startups against regulatory investigation. Microsoft’s investment in Inflection AI was briefly scrutinized in Europe and is still being evaluated by U.S. regulators. Even Microsoft’s more traditional investment in OpenAI and the interests of Amazon and Google in Anthropic faced regulatory hurdles. So far, however, regulators have yet to conclude that any of these agreements violates antitrust law.