Why Do Goliaths Embrace the Davids? Corporate Giants Acquiring AI Startups

News recently that Microsoft hired most of Inflection AI’s staff, including Mustafa Suleyman Inflection’s CEO (now CEO of Microsoft AI) had people in AI buzzing, not knowing exactly what to think of it. Did this mean a bad thing for AI startups, heralding a domino effect of large companies gobbling up small ones before they had a chance to bloom? Or is this to be expected, and if so, what does this mean for AI startups? We think it is to be expected. Many companies will be gobbled up, many will fail, and some few will become the next large companies. Nothing unusual. Why?

Satya Nadella, CEO of Microsoft, and Mustafa Suleyman, now CEO of Microsoft AI

Imagine a world where every major corporation was once a fledgling startup, buzzing with the electric energy of innovation, fueled by the dream of changing the world one product at a time. It's not just a fantasy—it's the origin story of many behemoths in the business universe. In their nascent stages, they were all about the product, the market, the hustle, and the dream. Fast-forward a few decades, and the script flips: now they're the established titans, eyeing the sprightly new startups with something between admiration and a strategic glint in their eye.

The Magnetism of Startups: Why Big Business Can't Resist

Startups are like the North Star for today's corporate giants, particularly those in the field of AI. Why? Because startups epitomize the forefront of ingenuity—they're small but mighty laboratories of the future, where the DNA of innovation is not just present but dominant. They're fast, they're fearless, and they're unfettered by the corporate shackles that can sometimes turn a company's once-vivid vision into a monochrome routine.

The Big Fish-Little Fish Dynamic: A Tale of Two Cultures

In the corporate sea, the big fish often find themselves ensnared in their own nets of processes, hierarchies, and cautionary tales. The smaller fish, the startups, dart about with entrepreneurial vigor that's intoxicating and, quite frankly, enviable. These little fish don't just swim in the currents—they create their own. So when the big fish want to change course, it's often easier to team up with or swallow a smaller, nimbler fish that's already charting the path.

The Alchemy of Acquisition: When Startups and Corporates Collide

When a startup comes under the wing of a corporate giant, it's a meeting of minds and capabilities. It's a symbiotic relationship—the startup infuses its bold DNA into the corporate bloodstream, and in return, the startup's vision is catapulted into the stratosphere by the corporate's might. It's about scaling that raw potential into something exponentially impactful.

The Inherent Challenge: Why Don't Big Companies Just Innovate More?

Now, this raises a puzzle: with all their resources and brainpower, why do big companies need startups to innovate? The truth is, creating a culture of innovation from scratch is a Herculean task for a large company set in its ways. Startups, living on the edge of uncertainty, make innovation their daily bread out of sheer necessity. In comparison, the Goliaths of the industry often find themselves struggling to spark that fire of creativity within the existing infrastructure. 

AI Startups: The Crown Jewels of the Tech World

AI startups are the crown jewels in the startup landscape. They hold the keys to technological kingdoms yet to be built. When a corporate giant acquires an AI startup, they're not just buying a company; they're buying a future—a future where they stay relevant, competitive, and innovative. AI isn't just a buzzword; it's a game-changer, and by bringing these startups into the fold, corporates are ensuring they don't just watch the game but actively shape it. Below is a market map for generative AI showing just how many major startups are involved (with hundreds more in stealth mode).

Generative AI Market Map as of January 2024

But we feel AI startups are even more prone for large companies to gobble them up than any other kind of startup in the past. What is it about AI startups that make this so?

  • Talent: It is no surprise to us that Microsoft focused on hiring almost all of Inflection AI’s employees. The kind of knowledge and experience that is needed to successfully do Generative AI and AI in general is substantial. Getting hold of a team is especially alluring. It is like attaching a successful appendage to an existing body. There are issues, though, which could hijack the success of this move. A large company’s bureaucracy and difference in culture could erode the potential of such a move, all the way down to mediocrity or failure.

  • Emerging Giant: We are not the only ones that see Generative AI as a very significant and unique “movement,” something similar to horses being replaced by cars. So many aspects of life and work will majorly change due to Generative AI, as we have written about previously. Large companies see it very clearly, too—that we are at the start of what will bring giant change and its relevant growth in business. It’s that business growth that large companies are really interested in.

  • Paradigm Shift: That huge forthcoming business growth is possible because Generative AI represents a paradigm shift in how humans get and use information, cutting down the time and effort needed. Large companies want to get a piece (as large as they could) of the technology that achieves this.

It was disclosed recently that Apple acquired DarwinAI, a company whose focus is on Computer Vision rather than Generative A. Over the last couple years, though, Apple has bought several other AI companies of which Generative AI was the focus of a number of them. Also, very recently, it has become known that Apple have been in discussions with OpenAI and Google, regarding Gemini, to power iPhone’s iOs 18 with Generative AI. And according to a Chinese media report, Apple has decided to use Baidu’s Ernie Bot to power its devices in China with Generative AI. So, it is not only acquisitions that could solve product needs for large companies—it could also be partnerships. But, partnerships usually have to do with only particular products. Acquisitions are the way to go for large companies to have control over products’ and company growth and garnering of revenues.

The Bigger Picture: Innovation as a Cycle, Not a Destination

This dance of acquisition isn't just about companies growing bigger; it's about the cycle of innovation that keeps the business world vibrant and dynamic. It's a narrative of constant evolution, where today's startups are tomorrow's titans, and today's titans are guardians of the future. It's a cycle that spins on the axis of human ingenuity, ambition, and the relentless pursuit of progress.

As we traverse this exciting era of AI and technological revolution, we witness a fascinating dynamic where the old guards and the new blood come together to redefine the boundaries of what's possible. It's a testament to the power of partnership, the allure of innovation, and the unwavering human spirit that drives us towards a future we can only imagine.

Just Three Things

According to Scoble and Cronin, the top three relevant happenings last week

Stability AI’s Shakeup

The CEO of Stability AI, Emad Mostaque, stepped down last week. He was replaced by COO Shan Shan Wong and CTO Christian Laforte as interim co-CEOs. Mostaque claims that it has to do with centralized versus decentralized AI, of which he says he prefers decentralized. We feel that there is much more to the reason he stepped down. An expose by Forbes last year found that Mostaque has a reputation for exaggeration, including the claim that he has a master’s degree from Oxford, when in fact it is only a bachelor’s degree. TechCrunch

Neuralink’s First Patient Plays Games

A video was posted to X by Neuralink that shows the world’s first Neuralink patient play chess and other games, which consisted of him being able to move a cursor with his mind. It is great that the patient was able to do that. We are waiting for more progress, as well as written scientific documentation. Tom’s Hardware

NVIDIA Blackwell: To Fill In For High GPU Demand

Nvidia has unveiled a new series of AI chips and software named Blackwell, aimed at strengthening its position as a leading provider for AI technology. Since the surge in AI interest prompted by OpenAI's ChatGPT, Nvidia has seen a significant increase in its share price and sales, driven by the demand for its server GPUs for AI model training and deployment, with major tech companies being key purchasers. The first chip in the Blackwell series, the GB200, is expected to ship later this year. The release is set to cater to the high demand for powerful AI processors, as seen with the current interest in Nvidia's Hopper H100 chips. This can only be good for the further development of Generative AI. CNBC

Scoble’s Top Five X Posts