Concerns Over Big Tech’s AI Investments and Market Control

A recent report by the Federal Trade Commission (FTC) highlights the increasing investments of major technology companies in artificial intelligence startups, which include Microsoft’s $13 billion investment in OpenAI and collaborations between Amazon and Google with Anthropic. These actions are causing concern over potential monopolistic behavior and competitive risks in the AI and cloud computing arenas. According to Bloomberg, a significant worry for the FTC is the practice known as ‘circular spending’, where startups use the investment funds to purchase services from their investors.

AI model training demands enormous computational power, often running into billions of dollars—a sum that startups like Open AI and Anthropic struggle to gather independently. Consequently, they rely on well-funded tech giants such as Amazon, Google, and Microsoft, which possess the necessary resources. These corporations, in turn, typically seek to secure exclusivity in their dealings with AI firms and encourage these startups to reinvest the funding into their services and products.

The FTC report expresses concerns that such investments might enable major cloud service providers (CSPs) like Amazon, Google, and Microsoft to monopolize the AI market by tying startups into exclusive agreements. These arrangements could prevent startups from working with multiple companies, increasing their dependence on a single benefactor and decreasing overall market competition.

FTC Chair Lina M. Khan commented, “The FTC’s report illuminates how big tech’s partnerships can result in lock-in situations, strip startups of essential AI resources, and expose sensitive information, thereby disrupting fair competition.”

Impact of Circular Spending and Market Control

An important aspect criticized by the FTC is the requirement for startups to allocate a portion of their funding to purchasing products and services from the big tech firms, a phenomenon referred to as ‘circular spending.’ For instance, a large part of Microsoft’s investment in OpenAI was provided as credits for its Azure cloud platform, which essentially creates a self-benefiting loop that minimizes financial risks for Microsoft. In exchange, CSPs offer AI developers discounted access to vast computational resources that are typically unattainable elsewhere.

Besides, CSPs often gain access to intellectual property, sophisticated AI models, and crucial data related to training and development. The FTC also highlighted instances where big tech firms gained access to sensitive data. In one reported case, a company received weekly updates on an AI startup’s financial health, including details on revenue and customer data, potentially leading to unfair competitive advantages.

Furthermore, the report points out that certain agreements allow tech companies to utilize the output from AI models—termed ‘synthetic data’—for their training purposes. This could pose ethical and competitive risks by enabling these companies to enhance their own AI systems at the expense of their partners.

Another issue is that these partnerships might encourage Big Tech companies to incorporate AI models into their products or host them on their platforms, further extending their dominance in the AI and cloud sectors.

The FTC also warns of a potential concentration of highly specialized AI talent within these dominant firms, which could hinder smaller companies from attracting the expertise necessary for developing advanced AI models. While the ongoing emergence of AI startups could suggest otherwise, this remains a significant concern.

Based on data up to January 2025 and considering trends observed since September 2024, the FTC aims to use this report to spark discussion among policymakers, regulators, and the public about the implications of these tech giant partnerships.