When an acquisition is no longer an aquisition?
Forget splashy press releases and billion-dollar headlines. There’s a new breed of acquisition happening in Big Tech, and it’s all about flying under the radar. Instead of outright purchases, giants like Google and Microsoft are increasingly turning to long-term licensing agreements as a stealthy way to absorb cutting-edge technology and talent, often from startups they’ve previously backed. This tactic offers a compelling alternative to traditional M&A, especially in an era of heightened regulatory scrutiny around antitrust issues.
Most recently Microsoft employed the strategy in 2024 to ring-fence Inflection.ai with a $650 deal which not only avoids regulatory issues for the Giant but also allows them to secure top talent. In a similar fashion Amazon has paid $330m for the technology and $100m in addition to retain key team members at Adept. Google has also been capitalising on the strategy as can be seen by its deal with the Character.ai founders, Noam Shazeer and Daniel De Freitas, were re-hired by Google in a paltry $2.7 billion deal. Thats right…start brushing off those old AI books and up-skill to start an AI startup that will only service one Technology Giant today!
The Cost-Effective Edge of Strategic Licensing in Big Tech Acquisitions
Why do this? The advantages are clear. By licensing core technology and “acqui-hiring” key personnel, Big Tech can effectively neutralize potential competitors, integrate valuable IP into their existing products, and bolster in-house expertise without triggering alarm bells in competition watchdogs. This approach sidesteps the lengthy approval processes and potential roadblocks associated with formal acquisitions, allowing for a smoother, faster integration. Moreover, it can be more cost-effective in the long run, especially for early-stage startups with promising technology but limited market traction.
This strategy isn’t entirely new, but it’s becoming increasingly prevalent. One notable example is Google’s 2014 deal with DeepMind. While framed as an acquisition, it reportedly involved a complex licensing agreement for DeepMind’s groundbreaking AI technology, giving Google exclusive access while allowing the startup to maintain a degree of independence. Similarly, Microsoft’s 2016 deal with SwiftKey, the AI-powered keyboard app, saw the tech giant license the core technology and bring the team in-house, effectively absorbing the company’s innovative capabilities without a formal acquisition.
This trend raises important questions about competition and innovation in the tech landscape. While licensing deals can be mutually beneficial, they can also stifle competition if used strategically to eliminate potential rivals. As regulators become increasingly aware of this tactic, we can expect greater scrutiny of these arrangements, particularly when they involve dominant players and nascent technologies with the potential to disrupt the market. The line between a legitimate licensing agreement and a stealth acquisition is becoming increasingly blurred, and it’s a space that warrants close attention in the years to come.
