Microsoft's Inflection acquihire is too small to matter, say UK regulators

Microsoft's "acquihire" of Inflection AI was today cleared by UK authorities on the grounds that the startup isn't big enough for its absorption by Microsoft to affect competition in the enterprise AI space.

The Competition and Markets Authority (CMA) confirmed the conclusion of its investigation by publishing a summary of its decision. While the CMA found that Microsoft's recruitment of Inflection co-founders Mustafa Suleyman and Karén Simonyan, along with other Inflection employees, in March 2024 to lead Microsoft's new AI division did create a relevant merger situation, a bit of digging indicated everything was above board.

As we explained when the CMA kicked off its investigation in July, the agency's definition of relevant merger situations includes instances where two or more enterprises have ceased to be distinct, and when the deal either exceeds £70 million or 25 percent of the national supply of a good or service.

In both cases, the CMA determined [PDF], the Microsoft/Inflection deal met the criteria. As to whether the matter could lead to a substantial lessening of competition, that's where the CMA decided everything was OK.

"Prior to the transaction, Inflection had a very small share of UK domain visits for chatbots and conversational AI tools and ... had not been able to materially increase or sustain its chatbot user numbers," the CMA said. "Competitors did not regard Inflection's capabilities with regard to EQ [emotional intelligence, which was an Inflection selling point] or other product innovation as a material competitive constraint."

In addition, the CMA said Inflection's foundational model offering wouldn't exert any "material competitive constraint" on Microsoft or other enterprise foundational model suppliers as none of the potential Inflection customers the CMA spoke with during its probe identified any features that made Inflection's software more attractive than other brands. Ouch.

"This is really what the CMA's Phase 1 process is for - a route to gather and properly assess all the [information] ... before reaching an evidence-based conclusion," CMA executive director Joel Bamford wrote on LinkedIn about the decision.

"Inflection AI is not a strong competitor to the consumer chatbots that Microsoft has developed directly (Copilot) and in partnership with OpenAI (ChatGPT)," Bamford added. "On this basis, we cleared the transaction."

Microsoft and Inflection's deal is still being reviewed by the US Federal Trade Commission and the European Union.

A Microsoft spokesperson told The Register, "We are pleased that after an investigation and review of the facts, the CMA has concluded that our hiring of Inflection employees raises no competition concerns."®