Will leading foundation model companies be acquired by big tech incumbents, or remain independent through continued mega-fundraising?

Des Traynor · Nov 15, 2023 · hedged

Amazon is the biggest threat to OpenAI — it could buy Anthropic outright and fold it into EC2, an easy route to market — while Microsoft is less of a risk given its close partnership

Being already in the cloud and virtually private lets Amazon leapfrog enterprise adoption concerns, and if OpenAI runs out of differentiation vectors commoditization makes the default cloud choice win

Scope: conditional on commoditization kicking in and OpenAI running out of differentiation

34:14 20VC: How to Survive and Thrive in a World of OpenAI, Are LLMs Being Commoditised, Where Does the Value Lie; Infrastructure or Application Layer, How Apple Could Win in a World of AI, How Amazon Could Threaten OpenAI and Why Google Struggle with Des Trayn

Harry Stebbings · Jun 10, 2024

Cloud providers are where the money is made in AI, and they will acquire the LLM companies and fold them into their product suites — OpenAI is the only one too expensive to be acquired

Even a company like Mistral at a $5B valuation is affordable for an acquirer such as Amazon

10:41 20VC: Reid Hoffman on Foundation Models: Who Wins & How Do Incumbents Respond | The Inflection AI Deal: How it Went Down | Why Trump is a Threat to Democracy | The Future of TikTok | Lessons from Sam Altman, Brian Chesky and the OpenAI Board

Harry Stebbings · Jun 12, 2024

All the smaller foundation model players will be acquired by large incumbents, especially the large cloud providers, and integrated into their existing solutions

39:28 20VC: Scale's Alex Wang on Why Data Not Compute is the Bottleneck to Foundation Model Performance, Why AI is the Greatest Military Asset Ever, Is China Really Two Years Behind the US in AI and Why the CCPs Industrial Approach is Better than Anyone Else's

David Cahn · Aug 5, 2024 · hedged

The partial-ownership structure between hyperscalers and frontier labs (roughly 49% stakes, separate businesses) will probably persist, because outright acquisition of OpenAI or Anthropic is not really possible.

Antitrust makes acquiring these businesses impractical, and the parents likely don't want to buy them; the structure still gives strong ownership and incentive alignment.

Scope: smaller labs can still be acquired or acquihired, as with Inflection and Adept

27:37 20VC: Sequoia's David Cahn on AI's $600BN Question | Why the Data Centre is the Most Important Asset | Servers, Steel and Power: The Core Pillars Powering the Future of AI

Eric Vishria · Sep 25, 2024 · hedged

A $100 billion acquisition of a foundation model company still feels like a stretch, and antitrust is a major open question for such deals

$30B acquisitions are not unprecedented so $100B is arguably not a huge multiple, but the absolute number still feels big

Scope: concedes $30B deals are precedented

32:11 20VC: Benchmark's Eric Vishria on Where is the Value in AI: Chips, Models or Apps | Why Nvidia Will Not Be The Only Game in Town | The Commoditisation of Foundation Models | Which AI Apps Have Sustaining Value vs Hype and Short Term Revenue

David Luan · Jun 24, 2024 · hedged

Among independent foundation model companies, OpenAI is the most promising because ChatGPT gives it the consumer flywheel; a pure-play model seller has a very difficult path

Staying independent requires an enormous cash-generating business, which ChatGPT can provide and pure model sales cannot

Scope: excluding Adept

31:43 20VC: Why Foundation Model Performance is Not Diminishing But Models Are Commoditising, Why Nvidia Will Enter the Model Space and Models Will Enter the Chip Space & The Right Business Model for AI Software with David Luan, Co-Founder @ Adept

David Cahn · Aug 5, 2024

OpenAI will still exist in ten years

It has a strong brand, consumer distribution, and product-market fit with ChatGPT, which is now a $3.4bn revenue business, making its disappearance very improbable

68:56 20VC: Sequoia's David Cahn on AI's $600BN Question | Why the Data Centre is the Most Important Asset | Servers, Steel and Power: The Core Pillars Powering the Future of AI

Jeff Seibert · Nov 22, 2023

Amazon should aggressively move into the AI space and acquire a model company to bolster AWS

The OpenAI–Azure partnership, plus Meta partnering with Microsoft, should make Amazon very nervous

38:00 Amazon should acquire a foundation model company to defend aws competitively

Alexandr Wang · Jun 12, 2024

Over the next ten years foundation model efforts will coalesce around nation states and the largest tech companies, leaving only a battle of giants

Model training costs have gone from hundreds of millions to billions and may reach tens or hundreds of billions; only entities with hyper-profitable business models or state budgets can underwrite that

38:33 Foundation model competition consolidates to nation states and largest tech companies given scaling costs

Alexandr Wang · Jun 12, 2024

Smaller model players will be absorbed by the large cloud providers, though how the existing model-hyperscaler partnerships resolve long term is genuinely open

The OpenAI–Microsoft and Anthropic–Amazon partnerships are structurally novel and their long-term outcome is one of the era's most interesting questions

39:39 Existing model cloud partnerships structural outcome is genuinely open

David Luan · Jun 24, 2024

Independent companies that sell models to developers must either become the first-party effort of a big cloud or use the short window before commoditization to build an economic flywheel large enough to stay independent

The tier-one clouds will do whatever it takes on capital, data flywheel and talent because their efforts have to succeed

30:52 Independent model sellers must become a clouds first party effort or build a flywheel before commoditization

Harry Stebbings · May 8, 2024

Cloud providers will be the cash cow businesses: Google, Amazon and Microsoft will acquire the foundation model companies à la Inflection and then give the models away for free

The margin sits in compute, so models become a free complement to monetized cloud

46:59 Cloud giants acquire model companies then give models away free since margin sits in compute

Eric Vishria · Sep 25, 2024

Not all foundation model companies will be acquired by the big incumbents; some will keep raising tremendous amounts of capital independently

A set of investors believes in the size of the prize and will keep funding bigger and bigger training runs, and $100B acquisitions are unprecedented even for the biggest tech companies

31:36 Some foundation model companies remain independent via continued mega fundraising