Amazon’s Adept Acquisition Sparks “Reverse Acquihire” Trend in AI Industry

Amazon’s hiring of Adept’s team sparks a new trend for Big Tech to acquire AI startups without facing antitrust scrutiny:

• Amazon recently announced it is hiring 80% of the team behind Adept, an AI startup that raised $400 million to build advanced language models, and will also license Adept’s technology.
• This follows a similar move by Microsoft earlier this year, when it hired most of the employees of Inflection, another well-funded AI startup, and licensed its technology in a deal worth up to $650 million.
• These “reverse acquihires” allow Big Tech firms to effectively acquire promising AI companies without triggering antitrust concerns, as they are structured as hiring and licensing deals rather than outright acquisitions.

The prohibitive costs of competing in AI drive consolidation: Building state-of-the-art AI models requires immense resources, forcing startups to seek exits as funding dries up:

• Despite raising $400 million, Adept struggled to secure additional funding to continue developing its advanced language models and enterprise AI products, leading it to seek potential acquirers.
• The high costs and intense competition in the AI space make it increasingly difficult for startups to go it alone, pushing them into the arms of cash-rich Big Tech firms looking to bolster their AI capabilities.

Antitrust scrutiny forces Big Tech to get creative: With regulators closely watching, tech giants are finding new ways to snap up AI startups without raising red flags:

• Traditional acquisitions, like Amazon’s failed attempt to buy robot vacuum maker iRobot, now face much tougher antitrust scrutiny, forcing companies to explore alternative deal structures.
• The “reverse acquihire” model, pioneered by Microsoft with Inflection and now replicated by Amazon with Adept, allows Big Tech to achieve the same goals as an acquisition without the regulatory baggage.

Analyzing the implications: As the AI industry consolidates around a few dominant players, questions arise about the impact on innovation and competition:

• The trend of AI startups being swallowed up by Big Tech could lead to a concentration of talent and resources, potentially stifling competition and limiting the diversity of approaches to developing artificial intelligence.
• However, the infusion of cash and scale that comes with aligning with a tech giant may also help accelerate progress in AI, allowing startups-turned-subsidiaries to pursue more ambitious research and development efforts.
• As more AI startups face the choice between raising ever-larger rounds or seeking a soft landing with Big Tech, the industry’s future may increasingly be shaped by the strategic priorities and interests of a handful of powerful corporations.