Channel reacts to CMA's competition warning in AI markets
The regulatory body outlined three areas of concern and revealed plans for further scrutiny of the sector, CRN asks partners for their take
The rapid evolution of the AI foundation models market has caught the attention of UK regulators. The Competition and Markets Authority (CMA) recently sounded the alarm, warning about potential risks to competition in this burgeoning space.
As the CMA moves to increase oversight, CRN reached out to channel partners to gauge their thoughts on heightened regulation of AI foundation models and its potential implications.
In an updated report, the regulatory body outlined three key areas of concern and revealed plans for further scrutiny of the sector:
- firms controlling critical inputs for developing FMs may restrict access to shield themselves from competition
- powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in deployment
- partnerships involving key players could exacerbate existing positions of market power through the value chain
The CMA's intervention signals rising unease among authorities about the market dynamics and potential for anti-competitive behaviour as artificial intelligence capabilities advance at a blistering pace.
Speaking at a conference in Washington DC, CEO Sarah Cardell shared highlights from the CMA's update to its AI Foundations Models (FMs) work.
In her remarks, Cardell described the transformative promise of FMs as a potential "paradigm shift" for societies and economies.
She also outlined a range of fast-moving developments across FM markets which, underpinned by the CMA's deepening understanding of the FM ecosystem, have prompted a marked increase in concern.
The speech highlighted the growing presence across FM markets of a small number of incumbent technology firms which already hold positions of market power in many of today's most important digital markets.
The firms have strong positions in both the development of FMs (including through the supply of critical inputs like compute, data, and talent), and in the deployment of models, through key access points or routes to market, like apps and platforms.
The CMA is concerned that some firms may have both the ability and the incentive to shape these markets in their own interests – both to protect existing market power and to extend it into new areas.
This could, according to the regulator, profoundly impact fair, open, and effective competition in FM-related markets, ultimately harming businesses and consumers, for example through reduced choice, lower quality, and higher prices, as well as stunting the flow of potentially unprecedented innovation and wider economic benefits from AI.
The firms at play
The CMA's update paper identified an "interconnected web" of over 90 partnerships and strategic investments involving the same firms: Google, Apple, Microsoft, Meta, Amazon, and Nvidia.
The CMA recognised the huge wealth of resources, expertise and innovation capability these large firms can bring to bear, and the role they will likely have in FM markets, as well as the fact that partnerships and arrangements of this kind can play a pro-competitive role in the technology ecosystem.
However, the CMA cautioned that powerful partnerships and integrated firms should not reduce rival firms' ability to compete, nor should they be used to insulate powerful firms from competition.
Maintaining diversity and choice in the market is also vital for safeguarding against the risk of over-dependence on a handful of major firms - the regulator argued - particularly considering the breadth of potential use for FMs, across all sectors of the economy, such as finance, healthcare, education, defence, transport, and retail.
Reflecting on the decade of experience the CMA has gained in digital markets, where "winner takes all dynamics" led to the rise of a small number of powerful platforms, Cardell said the CMA is "determined to apply the lessons of history" at this pivotal moment in the emergence of a new, potentially transformative technology.
CRN reached out to channel partners about the CMA's move to strengthen regulation around AI, read on to find out what they had to say.
Channel reacts to CMA's competition warning in AI markets
The regulatory body outlined three areas of concern and revealed plans for further scrutiny of the sector, CRN asks partners for their take
Allan Kaye, co-founder and MD at British reseller Vespertec
How do you think the concerns raised by the CMA about large tech firms potentially restricting access to critical AI inputs or distorting competition could impact your ability to offer AI solutions to your customers?
Obviously, there are valid issues raised by the CMA. If the market is dominated by a few major players then there will be restrictions based on their offerings, for example, pricing or software compatibility limitations that may reduce options for customers.
However, so far, at least, we haven't seen this impact any appetite from customers for AI solutions.
AI is shifting how the world is operating and there's huge demand for solutions. In our experience, we haven't seen any limitations from reduced competition, although we're intrigued to see how the CMA investigation plays out over the year.
The CMA warns about the risk of over-reliance on a handful of major firms for AI foundation models across industries like finance, healthcare, and retail. As a channel partner, are you worried this could limit the diversity of AI offerings you can provide to your customers?
There are a lot of concerns that over-reliance risks uniformity and hinders innovation. But this is far from what we've seen in the AI space.
The huge uptake and investment from these major firms in AI has generated mass interest in the technology and propelled innovation faster than perhaps it would have gone without their interest.
There's currently a large incentive for new products developed in the software arena, so I'm not overly concerned about a lack of diversity in our AI offerings.
Do you think such partnerships and strategic investments between large tech players like Google, Microsoft, Amazon etc. could make it harder for smaller AI vendors to compete and get their solutions into the channel?
I think it's important to note that this is where hardware and software are distinct. Software does not have the same barriers to entry that hardware does.
It's more difficult to get started in the hardware game, and partnering with large tech players like NVIDIA, who are directing the field for chip manufacturing, should not be viewed as negative.
For software, there's definitely an incentive to ensure a level playing field so that big tech doesn't monopolise the space and prevent start-ups from being able to compete.
However, it's a different game for hardware, so it feels unfair to consider them by the same rules.
What is your view on the CMA's stated goal of promoting "fair, open and effective competition" in AI markets? As a channel partner, how important is having multiple viable AI vendors to partner with?
For us, it's less about having multiple viable AI vendors and instead about having key partnerships that give us access to working with broader partners.
For example, we select GPUs that can cover the full spectrum of hardware vendors, and so despite coming from dominant players we can work with a range of different vendors and support the wider ecosystem.
In our eyes, it's more important to operate under a "rising tide lifts all ships" mentality to help innovation across the hardware sector.
The CMA says it will apply its merger review powers to assess AI partnerships for potential anti-competitive effects. Does the possibility of blocked partnerships/acquisitions in the AI space concern you in terms of limiting the AI solutions available to channel partners?
There are always going to be concerns about blocked partnerships as it's an uncertainty in the market.
From a hardware perspective, I can't imagine it having as large a positive impact as it would in the software space - where it would serve to help the range of smaller providers getting stuck into AI with increased market share.
For hardware, the ecosystem is currently reliant on a few leading players, which isn't a negative thing, so blocked partnerships might ultimately hurt the industry.
Read on for Infinity Group CEO's take.
Channel reacts to CMA's competition warning in AI markets
The regulatory body outlined three areas of concern and revealed plans for further scrutiny of the sector, CRN asks partners for their take
Rob Young, CEO of Infinity Group
How do you think the concerns raised by the CMA about large tech firms potentially restricting access to critical AI inputs or distorting competition could impact your ability to offer AI solutions to your customers?
We make it our business to understand when and where Microsoft's best-in-class solutions can deliver value for customers. To do otherwise would risk long-standing relationships. In many instances, the capabilities provided by Microsoft Copilot are enhanced by organisational data and IT infrastructure, making it the most powerful out-of-the-box tool. This is where we can add value and help customers harness these tools to create additional IP.
The CMA says it will apply its merger review powers to assess AI partnerships for potential anti-competitive effects. Does the possibility of blocked partnerships/acquisitions in the AI space concern you in terms of limiting the AI solutions available to channel partners?
When done well and with customers' best interests at heart, market consolidation is a win-win, particularly when partnerships and acquisitions are driven by shared strategic aims. ISVs also harness the technology and tools developed by the likes of Microsoft, Google, et al, to develop compelling IP and solutions. Innovation could be greatly hindered by overbearing regulations that do not consider the power of partnerships further downstream, which have at their core solutions underpinned by the offerings of one or more of the larger players in the market.
Read on to find out what else the UK government is doing to regulate AI.
Channel reacts to CMA's competition warning in AI markets
The regulatory body outlined three areas of concern and revealed plans for further scrutiny of the sector, CRN asks partners for their take
A digital hub for developers
Earlier last year, the UK government also announced a new advisory service to help businesses launch AI and digital innovations.
The service was set to help organisations across the country demonstrate that their new AI and digital innovations meet regulatory requirements so they can quickly bring them to market.
The new pilot scheme launched recently and sees a number of regulators develop a multi-agency advice service (including the CMA) providing tailored support to businesses so they can meet requirements across various sectors while safely innovating - including through innovative technologies such as AI.
Backed by over £2m in UK government funding, the streamlined service is intended to make it easier for businesses to get the help they need, by bringing together the different regulators involved in the oversight of cross-cutting AI and digital technologies.
In turn, businesses will be able to take their new innovations to market responsibly and more quickly, helping to grow the UK's economy.