2024-07-28 05:19:45
Are startups specializing in generative artificial intelligence (AI) already an endangered species? The question may come as a surprise, but the cruel reality of the sector is there: as soon as they hatch, they find themselves swallowed up by the digital giants.
Until recently, Silicon Valley startups were awash with money, but rising interest rates have changed that dramatically and the sources have dried up.
Lacking funding, several of the most promising startups, such as Inflection AI or Adept, have been faced with a flight of their leaders, who have been asked to discreetly join the large groups in the sector.
Some, like Character AI, are having great difficulty raising the funds needed to maintain their independence, while others, like the French company Mistral, have been identified as potential takeover targets.
Even OpenAI, the creator of ChatGPT, is locked into its relationship with Microsoft, one of the largest market capitalizations in the world.
The deal allows OpenAI to count on $13 billion in investment from Microsoft in exchange for exclusive access to the company’s learning models. Amazon has a similar deal with Anthropic, another industry gem.
Define the rules
The main reason is not far to seek: the development of this disruptive technology is so expensive that only groups such as Microsoft, Google or Amazon have the means to finance it.
“Those who have the means are also those who set the rules and define the expected outcomes, which will necessarily be in their favor,” says Sriram Sundararajan, an investor in the sector and adjunct professor at the University of Santa Clara’s business school.
Far from the urban legend that surrounds Silicon Valley, generative AI will not come out of the garage of the parents of one of its creators.
In order for ChatGPT to create texts that mimic human creations in just a few seconds, it requires some type of technology that harnesses fantastic levels of computing power from dedicated servers to allow it to be trained.
«Les startups [du secteur] “They were created by former research executives who worked at digital giants and they require resources that only the big cloud providers have,” recalls Brendan Burke, an AI analyst for Pitchbook.
“They are not following the classic entrepreneurial path of doing more with less, but rather they want to replicate the conditions they experienced working in very well-funded research labs,” he adds.
Most of the young companies in the sector, including Inflection and Adept, were in fact created by former employees of Google or OpenAI.
Therefore, getting closer to the giants “makes perfect sense” says Abdullah Snobar, executive director at DMZ, a startup incubator based in Toronto (Canada), “it helps to put oil in the wheels and move things forward.”
“Kill the competition”
With the risk, however, of “killing the competition” and “ending up with three large groups that will suck up everything,” he warns.
The burning question in Silicon Valley, then, is whether regulators will eventually step in. Digital giants are increasingly facing vetoes over their insatiable appetite for high-potential startups.
Thus, Google’s attempted acquisition of the Israeli cybersecurity company Wiz, potentially one of the biggest deals in the sector, was abandoned precisely because of the risk of not passing the regulatory gauntlet.
Whether in the United States, the European Union or the United Kingdom, regulators have indeed announced that they will be more attentive and the agreement between Adept and Amazon has attracted the attention of the American competition authority (FTC).
“Regulators will have a hard time preventing the kind of deal” signed with Inflection or Adept, nevertheless estimates John Lopatka, professor of law at Pennsylvania State University, “which does not mean that they will not try to act.”
In a joint statement, US, UK and European regulators said they will not let industry giants take over the nascent AI industry.
“Regulation will catch up with AI,” warns Sundararajan.
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